Talking Points- US DOLLAR testing uptrend from April low.
- GBP/USD at topside of multi-month ascending triangle.
- Forex economic calendar focuses on US housing data on Tuesday.
Yesterday we examined some of the causes behind the US Dollar’s weak start to 2014, which has largely bucked consensus expectations given the widespread belief that US Treasury yields would rise amid the Federal Reserve’s tapering of QE3. Today, the technical vulnerability of the US Dollar Index is revealed via the Dow Jones FXCM Dollar Index, an equal-weighted basket of the US Dollar versus the Austrailian Dollar, British Pound, Euro, and Japanese Yen.
Specifically, if the US DOLLAR is on the verge of another downswing, the GBP/USD may be best positioned to take advantage of it going forward:
- US DOLLAR treated 10495/500 as significant support from February to April, before breaking on April 6.
- Post-breakdown resistance has formed at 10470/75 and 10495.
- The uptrend off of the April 10 and 17 lows is currently being tested; a move below 10425 would suggest resumption of the downtrend; below 10400 would confirm it.
- Only a weekly close through 10495/500 would suggest USDOLLAR strength, also representing the descending trendline off of the January, February, and April highs.
- GBP/USD may be in the midst of a two month long ascending triangle formation, beginning back at the lows seen on February 4 to 7.
- Resistance in the triangle formed against $1.6825, with the most recent failures coming after April 9.
- There have been a series of higher lows forming above the ascending trendline off of the July 2013 and March 2014 lows, suggesting increasing bullish momentum.
- The past three days price has consolidated into a minor flag (red) between 1.6773 and 1.6840 – these levels mark either side of the range to engage should a breakout opportunity arise. A move through 1.6840 would immediately draw attention for a move towards 1.7000.
--- Written by Christopher Vecchio, Currency Analyst
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