The dollar ended the week on a mildly firm footing, more than I had expected, but I’m still not quite convinced of direct follow-through just yet. Having said that, both hourly and 4-hour momentum are displaying dollar bullish momentum – even in EUR/USD and USD/CHF we have daily momentum still quite robust. Equally, across the four majors, we do also have dollar support from both 4-hour and hourly Price Equilibrium Clouds. If there is any potential weakness, then it’s that the Clouds are hugging price so closely that any breach would signal a correction lower in the dollar.
Overall, this tends to suggest a rather delicate start to the week. Consequently, the early hours of trading appear quite crucial to the fine balance there is between bullish and bearish. We should also keep in mind that, particularly following a basically sideways trading range for the vast majority of the year, that the market’s appetite for pushing the boundaries is hardly close to its peak as we move into a general decline in liquidity. As I mentioned last week, the lack of liquidity is a double-edged sword. It can draw the market into an extremely narrow and complicated ranges or just see a runaway trend.
While I am tending to favour the trend into December, we do need a break below this year’s low in EUR/USD at 1.0462. Already, USD/CHF has breached January’s high. While that appears positive – and it is – we do have to give thought to the short term at this time that could still provide a pullback.
Perhaps the currency that appears to have more vulnerability is GBP/USD. I had been expecting a correction higher on Friday that clearly did not happen. As such, we need to make special attention to this pair. Equally, AUD/USD has reached my targeted support. This appears to suggest now or never for the upside…
Start the week with some caution to make sure you don’t get caught out, but otherwise the dollar does suggest potential gains.