The US Dollar Index roared over 1% today led by a continuous tumble in the Euro and the Swiss Franc. The narrative I saw is that the market is looking past Greece and now focusing on fundamentals. Of course, this narrative concludes that fundamentals yield a lower Euro and an overall higher US Dollar from current levels.
A 1%+ move is not to be dismissed and definitely throws a rock or two at the bear case. However, from my perspective, it’s always good to step back and make sure if anything has actually changed.
Let’s go back in time again with the EUR/USD. It had a horrible weekly return some 5 weeks ago after failing at the 1.14 handle. If you go back to those days, the Euro “was done”. It had rallied, it had reached a key resistance level, it had failed. The parity crowd came out en masse. As we hit 1.08, the cry for parity got even louder. Guess what happened next? Back to 1.14! The point being – one day or one week momentum moves can sometimes lead you astray. Remember what happened the Monday after the recent US non-farm payrolls release?
(Side note: I’ll only become bearish EUR/USD if it breaks below 1.08 on the daily chart).
Am I surprised by the move in the EUR/USD? I’m definitely not surprised by the move itself, but the speed was definitely alarming. As stated on the post from Sunday (see: Charts and Trading Ideas for Monday), I shared the concern of some traders I follow (to give credit, they were @exploreFX and @trader1sz) that the stops sub 1.1200 were not cleaned. As a result, going into this week, I was not long the EUR/USD.
Note that this is the same concern I have with what happened on the US Dollar Index last week (see post: Reviewing the USD’s Swing Failure Pattern on June 18th). Need I say more?
Alright, now to the charts. Today’s action definitely hit the DX chart. On the hourly and 4-hour charts, it broke the bearish market structure. It means that we’ll probably see buyers as we hit the 93.80-94.20s green zone on the chart below. If recent history is any indication, the 95 level should also provide support. I think the edge is looking for opportunities at 95, 94.50s, and the green & red zones.
As for the EUR/USD, it also broke the bullish market structure. After challenging the 1.14 handle 6 times, it could not sustain a move about it. What can’t go up, many times goes down…
Whether bullish or bearish, the key is to be smart about entries. If bullish, let it rally (assuming it does) and retrace to a reliable order block before buying. The red zone on the chart below (which also coincides with the broken trendline) will attract sellers. If with a long position, probably makes sense to cover there and look for a re-entry. If bearish, this is a good opportunity for an entry short.
Cable has retraced and is back below 1.5813. I’m thinking that any move to 1.5800/13 and the sell zone will attract sellers again. I’m not bearish Cable per se, but after the ~800 pip move, it’s hard to find attractive buying opportunities at these levels. I think there’s plenty of 40-60 pip trades to be done on Cable.
To me, the most interesting moves today were on USD/CAD and the AUD/USD. On the Loonie, it did exactly what you would want if looking for more downside. It broke above the key resistance, cleared the stops, and quickly got back below the key level. It also got stopped right at the old order block. So far, this bodes well for my short GBP/CAD position and I like a short here in general.
And we can’t forget about WTI crude oil – it looks “ready”.
Aussie also did a tremendous job today – it actually finished up for the day. After clearing stops and being held by the recent bullish order block, it’s now breaking structure to the upside. I would like to see .7840s.
(Disclaimer: I still have my long AUD/USD and short GBP/AUD positions)
Overall, I like the Australian Dollar and the Canadian Dollar. USD/JPY shorts at 123.90s (price as I type) is also quite appealing.
If you look at the chart below, the overall USD/JPY move today got held at the last bearish order block. The additional supporting item is that the 124 level held on the re-test of a 15-min bearish order block).
(Disclaimer: I also have a short position here from current levels).
The key is to play smart, get good entries, control the risk.
If the EUR/USD gets to 1.08 overnight, call me maybe.