Is US Dollar Weakness a Retracement or a Reversal?

The US Dollar weakened after the NFP and unemployment data release on Friday. How should Forex traders treat this USD weakness: is it an opportunity to jump on board the USD strength trend or are there potential reversal signals lurking?

EURUSD: HEAVY RESISTANCE AHEAD

The EURUSD shows little doubt about the true intentions of the trend: down with an exclamation mark. Price is below the classical 50 sma (magenta) and 200 sma (purple), which are bearishly aligned as well (50 below 200). These particular graphs are easy to read: price is clearly making lower lows and lower highs and price is higher on the left side than on the right side of the graph which confirms the down trend (comparing left of the chart with right is a simple way of identifying the trend).

Does the downtrend shows signs of exhaustion? Not at this point: divergence and reversal chart patterns are certainly not present. In fact, layers of resistance are scattered above current price levels and price could turn at any one of them.

It makes sense to hunt for the downtrend continuation and potential shorts at any of these points: starting with the current 1.25 price level. The next confluence of resistance is at 1.26 and then 1.27, which price should not break above otherwise the bearish analysis is out of the window. The main target is the bottom of the weekly wedge (green) at around 1.2150-1.22.

10- 11- 2014 eu

USDJPY: EXPECT TURN AROUND BACK UP AT ANY SECOND

The USDJPY massive bullish momentum is showing no signs of exhaustion: the oscillator bars managed to pull away far from the middle line and no divergence between the previous tops is present. The chances of the uptrend continuation are therefore very high.

The most likely bullish continuation spot are the Fibonacci levels such as the 23.6 and 38.2 Fibonacci retracements at 114 and 113. Any candlestick pattern at these levels would be a signal that the correction has finished and the uptrend can continue. A stop loss could be below the candle stick pattern or below the 382 and/or 50 Fibonacci levels. The main target is the -27.2 Fibonacci level at 117.40.

10- 11- 2014 uj

GBPUSD: SAME STORY

The Cable is really no different than the previous two USD pairs: downtrend. But there are noteworthy differences between the massive push against the JPY and the GBPUSD

  • The oscillator is showing divergence (purple line on oscillator);
  • The downtrend channel (green) is shallower in its angle;
  • The space between the moving averages is smaller than in the past.

The downtrend is certainly intact, but the speed and decisiveness is incomparable with the USDJJPY for instance. In my analysis, I therefore would rather select and trade the USDJPY upside than the GBPUSD downside. This does not mean that GU shorts would fail. However, it does mean that the USDJPY longs have more profit potential because the GU channel bottom is very near to current price.

10- 11- 2014 gu

What currency pair do you favor the most for this trading week?

What do you expect in this week’s trading?

Let us know down below!

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  • Chris

    Hi Yameen, great job! Excellent position trading!

  • Yameen

    I have an opened trade on Eur/Usd from 38 levels, as it always seem a disaster with them so it was ideal opportunity for us to take benefit and i completely agree it is definitely going to 1.20 levels before end of the year. In fact i have my TP set at 1.20 levels. I have already got a gigantic amount of pips nearly 1400 hundred and luckily i am trading on a swap free account thanks to OctaFX broker. Otherwise it would have been an epic disaster having to pay 6-7 months swap!

  • Chris

    Thank you! Thanks too for taking the time to drop a note! Happy hunting

  • ali

    Good work.