FX snapshot – Dollar Index, EUR/USD, GBP/USD, USD/CAD

Dollar strength likely to be key, yet Bank of England releases make cable a dangerous trade to take.

A Canadian dollar coin
Source: Bloomberg

Dollar Index pullback likely to be over

The dollar appears to be set up for another move higher this morning, following yesterday’s pullback to the descending trendline respected over the last week. Given the long wicks that have greeted each attempt to move lower, I expect to see the bulls regain the upper hand once more in the coming hours. This would mean a move back towards the $98.43 region. A close above that would point to another round of buying, which has often been the case in the past when major resistance is broken. Ultimately I believe we will see a move back to $100 in the medium term. However, Friday’s jobs report will probably have a lot to do with exactly when $100 gets hit. 

EUR/USD selloff likely to continue following shooting stars seen overnight

EUR/USD resurgence over the US and Asian sessions have moved us into a position where the past two candles have formed shooting stars – small bodies with long upper shadows. This typically comes when the market is unable to retain any gains and points towards likely losses to come. As such, I believe we are likely to see selling continue apace with a move back to $1.0846 this morning. The next support in view past that level would be $1.0819.

GBP/USD resurgence important, yet BoE makes trading risky

Cable has managed to get back into the ascending triangle formation, which points to inherent sterling strength; something we have seen a lot of in recent weeks. However, the important thing now is regaining the $1.565 level to create a new high. The key resistance zone here is between $1.567 and $1.5689, which if broken would lead to a bullish outlook. However, with the Bank of England releasing a whole raft of economic data and its rate decision today, I am steering clear given the unpredictability of those events and how the market will take them.

If I was to say anything for price action prior to the BoE event, I would say that the likely resurgence of the US dollar, coupled with a likely breather for sterling would push me more towards a retracement in the short term.

USD/CAD upside remains in favour despite temporary pullback

USD/CAD pulled back to near enough the C$1.3103, which provided a great entry for those lucky enough to get it. However, just as discussed on yesterday’s IGTV broadcast, the ability to remain above $1.3103 was key and the fact that the pullback didn’t actually fully touch this level was telling. I continue to see any retracement as an opportunity to get long and as such, I continue to see further upside in USD/CAD.

Do not forget the relationship with crude prices is key, so those trading the CAD should also be aware of oil charts given their influence. For now, I expect a break above C$1.321 to bring another leg higher towards C$1.33.

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