FX snapshot – US Dollar Index, USD/CAD, EUR/GBP, AUD/NZD

Federal Reserve statements push dollar lower, forcing a focus on alternate currencies.

Source: Bloomberg

Fed comments spark Dollar Index weakness
All was going well with our bullish dollar outlook – until the Federal Reserve came along. Comments from the Fed’s Fischer pushed expectations of a rate hike back somewhat and with it went the dollar, which broke below the inside trendline.

However, whilst the short-term looks somewhat ugly for the Dollar Basket, the medium-term outlook remains bullish unless price moves below 96.52. The overnight support at 97.31 (61.8% Fibonacci retracement) looks likely to be tested again, yet we also have a crucial ascending trendline in view just below that (currently 97.25).

Thus whilst in the short-term things do look a little more bearish, I am bullish overall and still expect we will see a bullish outlook come to the fore before long.

USD/CAD selloff a short-term phenomenon
Yesterday’s unexpected selloff in USD/CAD saw price drop to a new August low. Support provided by the 61.8% Fibonacci retracement has pushed price higher, yet resistance at the 50-simple moving average is now leading to another move to the downside. I remain bullish over the medium-terms and unless we see a move below $1.2862, the creation of higher lows remains in place.

However, it is clear that we could see further downside today given the new short-term low and lower high in place. Thus the short-term looks relatively bearish, with $1.3 the key support level. That said, I do expect a bullish theme to return before long and as such this is seen largely as a retracement within a wider picture of strength.

EUR/GBP well positioned for another selloff
EUR/GBP is at a good area of resistance currently, with price towards the upper end of the falling wedge that has dominated price action over the past four months. With the divergence in monetary policy between the ECB and BoE, the expectation is that the long-term trend will be towards further weakness in this pair and as such, I expect the sellers to come back into prominence once more.

With the upper threshold of the wedge currently at £0.7094, I will be watching intraday charts for a sign of a reversal lower. My bullish view holds unless price moves above £0.716.

Wide AUD/NZD channel provide weak week
Owing to the unpredictability of the dollar given the impact of those Fed comments, I thought it would make sense to cover charts which do not involve the USD. AUD/NZD has been trading within a wide range over the past month or so, and this has been relatively consistent.

The first two selloffs in this channel had just a single green day out of 14 candles and this gives me confidence that we could see a similarly consistent move for the coming week. I would expect the exit of this formation to be towards the upside, yet for the moment, we could see another move lower. As such, I am looking for a move back down to 1.1 in the coming week.

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