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Slow Dollar Consolidation Ahead Of US Risk Events

Published 10/28/2014, 12:51 AM
Updated 07/09/2023, 06:31 AM

RCIS Index Trading

This method of using bespoke FX indexes to compare the strength of multiple currencies aims to find trading opportunities that can sometimes get lost in the noise and distortions of charting using individual currency pairs. Reasonably well correlated with key dollar pairs as a result of the index weighting but often significantly different, we are able to trade divergences between the index charts and the major dollar pairs. All of the indices have positive polarity, meaning that when the Yen strengthens for example, the JPY% index chart will rise. You can also purchase these indexes for NinjaTrader from the link at the bottom of this analysis.

Outlook

Monday was quite a slow day with the dollar on the back foot very slightly although nothing to really write home about. We simply pushed down to near term support and then bounced very mildly to end the day near opening prices. On the data front we had poor German IFO business climate data at 103.2 vs 104.6 expected, but then poor US pending home sales data to counteract that in terms of sentiment with the numbers coming in at 0.3% vs 1.1% expected. On the calendar for Tuesday we only really have Durable Goods Orders and Consumer Sentiment which may raise some volatility, although things are expected to be slow in the wind down towards the German CPI numbers and US GDP on Wednesday, followed by the FOMC on Thursday. As such we may remain in slow paced markets as traders prefer to not take risks ahead of important events later in the week.

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USD% Index

USD index
As suggested the day before, the dollar remained offered although only sightly and this may make the recently tested support a good line in the sand for near term sentiment. Below that support and there is reduced confidence about the FOMC, above that support, which is now bolstered by the green 200 hour moving average and the market seems confident enough to hold onto dollar longs into the US risk events. I am bullish USD% although preferably from 1.2800 for EURUSD

USD% Index Resistance (EURUSD support): EURUSD 1.2685, 1.2600
USD% Index Support (EURUSD support): EURUSD 1.2717, 1.2800, 1.2850, 1.2900

EUR% Index

EUR index
Not the kind of reaction to support that will encourage the Euro bulls to enter the market, this seems like a cautious profit taking bounce ahead of further selling to me. We remain below the 200 hour moving average and as such the sellers remain in control although we will have to see if there is any dollar long squaring from the jittery market ahead of the the big risk events of the week. If the dollar does fall though support it may be a good chance to enter short EURUSD from around the 1.2800 to 1.2900 region. Key support to the downside is still 1.2500 for EURUSD. I am bearish EUR% longer term but we may see better prices yet

EUR% Index Resistance: EURUSD 1.2729, 1.2800, 1.2900
EUR% Index Support: EURUSD 1.2642, 1.2500

JPY% Index

JPY index
Well, we had previously mentioned our conflicted opinion regarding the yen weakness combined with the inability to break into the ichimoku kumo for Nkkei 225 futures and this still holds. We have seen some Yen strength creep back in although it is very mild and we remain below the 400 hour moving average for the JPY% index. USDJPY 107.00 may be key support as this would align roughly to the bearish JPY% index channel top. The Nikkei kumo will need to be breached though if the yen is to stand any chance of further downside and USD/JPY upside. I am neutral / bullish JPY%

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JPY% Index Resistance (USDJPY Support): USDJPY 107.00, 106.50
JPY% Index Support (USDJPY Resistance): USDJPY 108.60, 110.50

GBP% Index

AUD index
Our suggestion of pound upside played out as planned although we only saw mild volatility. EURGBP remains bearish and continues to find offers on the rallies. If the GBP% index breaches the orange bullish trend line suggesting GBPUSD 1.6054 as a key support level then we could move back lower in the medium term towards the support at 1.5800 although I still fancy higher to test the key resistance at 1.6242 as a result of the FOMC jitters followed by dollar strength after the FOMC to bring the pound back lower for a hold of the bearish trend.. I am bullish GBP% short term, bearish long term

GBP% Index Resistance: GBPUSD 1.6168, 1.6242
GBP% Index Support: GBPUSD 1.6050, 1.6000

AUD% Index

AUD index
Still very sluggish and without trend following the recent sell-off and consolation period. We now await the FOMC to decide the next move. Fundamentally I still like longs although the price action is hardly encouraging so another spike lower before upside can not be ruled out, so those that bought on the recommendation of upside should perhaps think about taking dome profit and reducing expose as a precaution. I am bullish AUD% but can not rule out one last leg lower before upside

AUD% Index Resistance: AUDUSD 0.8837, 0.8925
AUD% Index Support: AUDUSD 0.8714, 0.8614, 0.8540

CHF% Index

CHF index
We did see some slight EURCHF downside nearer to the key 1.2050 support, the CHF% index has pushed slightly higher but nothing really very major. The 200 hour moving average remains the line in the sand for some more meaningful upside. While we hold below that Franc resistance (above USDCHF 0.9483) we should expect further slow bearish price action. Above that level (below USDCHF 0.9483) and we could see a temporary push higher which I would view as a good selling opportunity. I am bearish CHF% from resistance

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CHF% Index Resistance (USDCHF support): USDCHF 0.9645, 0.9429
CHF% Index Support (USDCHF resistance): USDCHF 0.9530, 0.9565

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