Week Ahead: A Return to USD Strength

A lighter than normal volume is expected in the U.K. session on account of the Bank Holiday..

Last week was dominated by some sideways and slightly choppy moves following large gains seen in the USD this month. Many crosses took a bit of an inflection point on Wednesday and Thursday, providing some interesting price rejections albeit in counter trend (hence lower probability) environments.

This week, markets will be following up on whether these corrections were short or long-term moves.

This week is extremely light on data flow, so we could get a good sign of potential future moves. If volumes are really light, expect the markets to grind in their natural directions for the time being.

EUR/USD
The euro was really interesting last week. It put in a good price rejection on Wednesday and then, typically for this pair, retested that level on Friday.

The pair remains below that key 1.3000 level, and while it’s there we prefer it lower in the medium term. That said, in low volume environments the euro tends to grind in its short-term trend due to its technical nature.

Taking a look at the EUR/USD picture from weekly to 4hr we see some signals aligning, but there are a couple of queries on the order book.

The weekly COT report which is typically pretty reliable on a long-term basis for the euro is starting to point to a move lower, with the Commercials crossing above the 70 point on the Index. This is typically a good sign for a move lower.




The daily chart is starting to paint a similar picture with a strong price rejection off of the 200 day moving average and the key 1.3000 level on Wednesday. It is followed by another rejection of this key 1.3000 level on Friday.

The Ichi cross is also looking lower; typically a relatively good indicator for the EUR/USD in recent years.


Our slight concern comes at the 4hr chart, although we have a nice stochastic cross pointing lower, the order book sits technically within Long territory.

However, if the order book starts to trend upwards again as it seems to be doing, we could see a really good opportunity for shorts and a much larger move again. If this is the case we would expect to see the 1.27000 mark tested.

Our strategy is to look for short options with stops above 1.3000.


GBP/USD
Unlike the euro, our view for the Pound remains the same. We prefer shorts around these levels, and the stochastic cross on 4hr late on Friday would give us another opportunity to short this pair.

The order book remains in Short territory with only a clear break above the 1.5150/1.5200 negating this.


AUD/USD
This is a really interesting pair at the moment; we tend to like the idea of counter trend long plays on this pair.
We have two real reasons for this and one major caveat.
Price rejection on Thursday in the Aussie was very strong off of the 0.9600 level; the order book has recently been at extremes, which tends to mean we are due some clearing either in the form of sideways chop or a correctional bounce to clear the heavy one-sided bias.

If we add to the this the COT report, the index of which is also at the 100 mark (which typically for the Aussie doesn't hold for too long before correcting slightly) then it gives us some idea that we could consolidate at these levels to clear the bias in the short-term for another move lower, or we will correct and set a new interim lower range.

Given the way the pair has traded over the past couple of years, we prefer the lower range idea so we are looking for long options, using the lower probability counter trend pin bar as a guide.

As mentioned, although this carries a big caveat for the Aussie, typically this is a relatively violent pair which means stops could be difficult to place. The pair could easily clear the 0.9600 level before bouncing aggressively or chopping sideways. Safer plays could be a clear break of the 0.9775 mark before trying long options - or waiting for a 4hr chart stochastic cross higher before entering long with tighter trailing stops.