Week Ahead Analysis: Critical Week for US Dollar

THIS WEEK

The USD will be in the spotlight after the recent strong NFP numbers.

We have a relatively light data calendar this week; the key highlights are the Chinese data on Tuesday and the FOMC statement on Wednesday.

We will continue to watch for comments out of the Eurozone, with focus on the political situation in Portugal and Greek aid payments.
The order books continue to point to further USD strength, with weekly lows in most Dollar crosses not far off. This could be a critical week for the pair. If we break the lows in some of the key crosses, we could open the door for further moves lower and increased USD strength. If the lows hold with support, we could see a bounce and trading within these new wider ranges. The FOMC statement on Wednesday is likely to play a big part in this.

EUR/USD

We are going to remain short with the euro, having entered at around the 1.3200 mark.

The pair looked closing to offering a reversal pattern, but comments from Draghi and the strong NFP number pushed Retail traders to aggressively buying of the dips in the pair. This in turn ensured we remained long with the pair in the near term.


Having bounced off of the 200 day SMA (with our Pin Bar Detector picking up this nice short entry signal as well), this pair now looks ready to test recent lows around the 1.2750 mark, which we could see this week.



The weekly chart has strong support at the 1.2750 level. This is key for perusal - if we break this we could easily see a much larger move lower. If it holds we could see a bounce and trading within a range 1.2750 to 1.3400.

GBP/USD
We remain Short from the 1.5325 mark, but last week’s moves did get us close to extreme levels in the order book with the magic 70 number not far off.
For the moment we continue to like shorts, but would look for signs of strong support to potentially offer some relief and a bounce.

The 1.4825 low is key in this pair. Similar to the euro, if we break the lows we are likely to open the door for a much larger push lower.
The pair does look slightly over done on the Daily and Weekly charts though, so there is good potential that some slightly better than expected U.K. data (or worse than expected U.S. data) offers a bounce in the pair back towards the 1.5000 level.

As per the daily charts, the major low will be a critical level in this pair, lower moves, increased USD strength, strong support and a hold of this level could mean trading within the wider range now set.

AUD/USD
Although the pair did drop on Friday, it didn't drop as much as other USD crosses, and indicates that this pair could be coming towards the end of its larger move lower.
Order book systems remain on short term timeframes through the chop, and have played out well as we continue to bounce within extreme levels with Retail Traders still aggressively long (and have been the 1.0400 level).

The daily chart continues to show a nice downward trend, but latest movements have been rather weak as shown by the RSI. We think we are starting to bottom out in this pair now, and even though we could still see a push lower beyond the 0.9000 level we would expect to see the pair curtail some of the bigger movements.

Contrary to our thoughts above, the weekly chart continues to point to further moves lower with our previous projection of 0.8500 still within reach.
We prefer the idea that this pair is bottoming, but for the moment would not use that idea to consider entering long on a longer term basis yet.

USD/CHF
Continue to hold this pair long from the 0.9450 mark as we continue to see the order book correct towards net short.
There is a lot of room in the order book to get us back towards the net short area; this could easily put the pair above the 0.9800 level should this trend continue.

Wednesday‘s FOMC statement is likely to be a key factor whether this run can continue. Markets will be looking for further confirmation of tapering in the September meeting.
The daily chart does look like it could do with a minor correction before pushing higher. Early week trade could provide some relief, but we would expect this to push past the 0.9600 / 0.9550 marks.


On a weekly basis, the pair still has lots of room to the upside and is well supported below. On a longer term basis, this pair could easily test the 1.000 parity level and beyond.

EUR/AUD
This pair has acted as a bit of a hedge/safety net for us on our AUD/USD and EUR/USD positions as we run it in half normal size orders compared to the EUR/USD.

We therefore still remain long this pair from 1.4000, but are aware many people closed the long at the 1.4350 mark with the nice Pin Bar signal lower that our detector highlighted.

This week will be key for the pair. If we break lows in the euro and see the Aussie starting to flatten, we could easily see confirmation of a top in this pair which would result in a much larger move lower on this pair. This is currently the scenario we are expecting.
The alternative is that we find support at or around lows in the EUR/USD, and continue to chop or flatten in Aussie which is pushing this pair higher again to test the 1.4385 mark which has held so well.

As mentioned, we suspect this pair has formed an interim top at these levels after a rather impressive run. We’ll wait to see if we get confirmation in the form of a breakout in either direction this week.