FX Daily: Signs Of US Dollar Reversals

As we mentioned earlier in the week, this week is likely to be a real grind in the markets as we carve out positions ahead of next week's FOMC meeting. Today news of a think tank releasing a report of a smaller than expected Fed taper (surely after NFP we are all expecting a smaller taper) the US Dollar dipped yet again.

However we now sit at some key levels in the Order Books which gives us a few clues to how things could play out and I wanted to share a few of my thoughts.

The reason why this week needs to happen, and is also slightly exciting in my opinion, is the following. We are starting to approach some really nice levels in most Forex crosses – not only that, but this is now combined with some nice levels in the Retail Order Books; essentially we have a nice confluence.

If we continue the grind this week (some pairs need to move more than others), to get us to key resistance points as well as those magic overbought / oversold Retail Order Book regions the markets will offer up one of two nice options – superb reversals or some choppy moves higher.

Essentially it comes down to the key points at which most Retail Traders give up hope on their shorts, now it depends on Order Book / Broker but that typically comes in when Retailers are about 70% to 75% biased in one direction and we are pretty close in a few crosses, just take a look at GBP/USD and EUR/USD tonight, 74% and 66% of Retailers are short.

At these levels what typically will happen is Retailers will start to buy dips on the grounds that the reversal is unlikely to happen when this gathers steam is typically when the reversal occurs. Now if this doesn’t gather steam we get a really nice pattern of dips which get reversed quickly for a move higher, this also becomes really easy trading as Retailers then short the spikes higher and look for fades.

So, although this week is rather slow, it is necessary and sets us up for some great potential.

EUR/USD

Long: 1.3260

RTAS Order Book systems still holding longs this pair as we continue to see some Retail Sellers. The moves have been slow in coming and look extremely forced in the pair but it now closes above the the 1.3300 number and we could easily see a push higher from here. 1.3290 / 1.3280 come in as initial support followed by 1.3235. Strong resistance in the pair doesn’t really come in until the 1.3400 mark but the push higher today felt a little forced so we may not see it gather too much steam.
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The pair continued its grind higher today finally breaking the 1.3300 level. If it can hold this we could easily see a push higher now.
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GBP/USD

Long: 1.5620

RTAS Order Book systems holding longs in this pair as it continued to push higher today. Now below the magic 30% figure in Retail Traders long this pair, which inevitably means that any move higher now will need to clear out orders if it is to proceed. Having now broken the 1.5775 level convincingly this turns to a key support level and we really do open the door up to higher moves.
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The pair continues its push today and convincingly breached the resistance at recent highs. With the Order Book now at extremes we are either likely to see nice corrections before each move higher to clear the Order Book or we could see an almighty reversal. In both cases it is key to wait for confirmation.
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AUD/USD

Long: 0.9290

Systems remained long this pair as we continue to see Retail Sellers, the pair has been gathering steam recently but we have the unemployment report in the Aussie overnight which is likely to be a key catalyst in either direction. Support comes in at the 0.9290 / 0.9250 level with resistance at the 0.9380 level.
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Key to watch resistance and supports levels in this pair now as it has started to break away from its lows as it carves out its bottom. If the pair can manage to stay above the 0.9200 level we could see it correct further towards 0.9400 then potentially towards 0.9700. Fails at resistance is likely to find Retail Buyers on dips and could cause a further push lower. A lot could depend on how much the RBA want to push this pair lower.
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EUR/AUD

Short: 1.4690

The RTAS Order Book system still holding shorts in this pair however the pair has remained relatively static this week as overall US Dollar weakness has the market focused. Order Book is ready to switch back to longs though as we have started to find some Retail Sellers in the pair. Support comes in at the 1.4180 / 1.4135 levels with key resistance at the 1.4470 mark. Given this pair’s recent trend we would expect it to settle at a key support level before deciding what to do next.
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Pair had formed a nice double top formation with an extremely large RSI divergence. The key support levels below now offer a nice area for this pair to bounce even if only in the short term with a nice oversold RSI. If we break the 1.4135 support level we could easily see this pair then move back below the 1.4000 handle.
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EUR/GBP

Long 0.8435

Order Book systems have chopped around at current levels as the pair has tried to break lower but found support. Retail Traders continue to sell the pair slightly and so Order Book systems have remained long for the time being. Pair seemed relatively supported at the 0.8400 / 0.8380 level today but resistance comes in just above at the 0.8445 level.
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Pair has been relatively weak recently but now looks like it is due a bounce back to the 200 day SMA on a correctional move. Today the pair has put in a rather nice Pin Bar at an obvious level and this could offer a really nice risk reward on a good entry price with the 200 day SMA coming in around the 1.5 reward per risk level.
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