Hello Forex traders,
The U.S. Dollar had mixed results against other currency pairs this week. The USD lost ground against the GBP after Wednesday’s inflation report; although it won territory against the Euro and Aussie. It however did manage to gain against the Yen and Cad.
What can traders expect from the USD? Let us review the USDCHF to get an idea if and when a USD trend might be visible.
SWISSY FALLING WEDGE?
The USDCHF has been trending down on the daily chart ever since May 2013. The fall brought price from its high at +/- 0.9850 back to +/- 0.88.
There are signals that the downside trend could end soon:
1) The entire structure could certainly be considered choppy and a potential falling wedge is noticeable when comparing the angle of the top trend line (magenta) to the lower trend line (purple):
The purple trend line is shallower than the magenta, which means the bottoms are closer to each other than the tops. This is a classical sign that the trend is not extending much lower.
2) Also the chart is showing multiple divergences on the daily charts when comparing the bottoms to each other (price bottoms versus oscillator bottoms).
More recently price has been stuck in a triangle. The bottom trend line (blue) and top trend line (orange) of that triangle have multiple hits and are well respected.
Price will remain in consolidation as long as price is between these two lines, which are clear lines “in the sand” and provide an easy way of assessing whether a break out of consolidation is occurring.
A downside break should be limited in its space by the 78.6% Fibonacci retracement level. With multiple daily divergence between the bottoms, there is a decent probability that price will use this level as support.
An upside break has a higher chance of breaking and continuing but a pause at any of resistance levels could always occur. Then it will depend whether there is sufficient momentum to break through or not, which would need to be judged by price action signals at the time of the break out.
The weekly chart shows that the falling wedge stopped at the 78.6% Fibonacci retracement level (blue Fib). A break above the magenta trend line could translate into a breakout up to the next brown dotted resistance line. A break above this resistance could then mean a continuation of USDCHF towards higher Fib targets such as the -27.2% Fib target at 1.0350 and then the -61.8% Fib target confluence at 1.07-1.08.
Of course a push up like this would most likely mean USD strength across the board. Time will tell if a USD trend will start this year or not. In any case the lines on the chart provide guidance when this could occur.
The USD index has been stuck in consolidation for weeks in a row. Currently there seems to be a triangle (black) within a triangle (purple) within a triangle (magenta).
Here too the trend lines provide the guidance when to expect a break out.
Due to the uptrend prior to the most recent consolidation, I am willing to give a slim advantage to the upside break but price would need to confirm this by breaking the trend line upwards.
What do you think of the USD at the moment? What are you expecting in 2014? Let us know down below!
Thanks for sharing this article! And Good Trading!
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