Critical Week Ahead For U.S. Dollar

Friday saw relatively mixed price action driven primarily by the mixed U.S. Non-Farm and Unemployment numbers. The NFP came in slightly better than expected, and the Unemployment figures were slightly worse (although this was primarily due to a rounding from 7.55%). Over the weekend, we also saw some poor Chinese data which played primarily on the Aussie.
It was a relatively quiet data week, but markets have got to some key levels with rather extended order books which could offer up some really interesting price action.
If we continue to see the same trends in the order books from last week, we could expect the U.S. Dollar to fall further this week as Retail Traders continue to position themselves aggressively long. However, tests of key levels (and potentially some stop hunting) could offer a clear out of orders to offer some value in short positions.
Many market commentators are now calling for a turning point in the market. Although this could be close, we prefer to wait for confirmation before closing USD shorts.
EUR/USD
Following last week’s push higher, the Euro is sitting just below a key 1.3400 level.
The weekly chart had been pointing to some weakness which never really materialized below the 1.3200 level.


Key for this pair will be the 1.3300 and 1.3400 levels. If these continue to provide resistance, then the pair could put in a lower top for a move back towards 1.2800.
If these levels brea, then we could be looking for another push to the 1.3700 level


However, despite the calls for an aggressive move lower we continue to hold our long positions from 1.2915. This is primarily due to the one-sided nature of the Retail Order book with over 65% of Retailers shorting this pair at present.
Such an aggressive positioning could result in a further move higher in the pair. So our focus would be to monitor this closely at key levels, as Retail Traders start to buy this pair and close shorts. This is where we would look to close longs and reposition ourselves for a short entry - value greater than 0 in bottom indicator.




GBP/USD
Following our long position last week, the pair continued to hold its ground. However, the order book did level off. We have been talking about a lower weekly range in the Pound (our blue box on Weekly chart), but with the move higher last week on this pair could be looking to break higher still.


There is a key resistance zone on the daily chart, capped by key levels and the 200 day SMA.

However the order book made a clear move last week, which not only allowed us to go long but continued up past the 1.5600 level initially, the move still has room to progress further and could cope with another 15% increase in shorts before utter extremes which would in turn most likely point to a move higher in the pair.
That said given the levelling at the moment it demonstrates how key these levels are, we wouldn't be surprised to see the markets test the 200 day SMA before really deciding on the next big move.
A turn in positioning would put us short at this stage, again a reading below 0 on the bottom indicator putting us long and above 0 putting us short.


AUD/USD
The aussie has continued its choppy run, having retraced most of Thursday’s move. We switched to shorts on Friday only for the pair to move slightly higher, although this was corrected at the open.
Chinese data over the weekend will play on this pair, but we continue to see the same sorts of issues. With Retail Traders longing this pair extremely, we could continue to see further downside until some of the orders are cleared out either through stops or natural closing of positions.



USD/CHF
The pair bounced nicely off of the key levels last week. Given our longer term approach, we continue to prefer to hold shorts for the time being until we confirm the switch in the order book, which like the Aussie seems to sit at some rather extreme long positioning by Retail Traders.