The US$ had a great week and was helped along its way by dovish ECB comments as well as some decent US housing and weekly-employment data. Next week’s FOMC outcome might prove crucial to determining whether the rally continues though.
There is a lot of US-based high impact data to monitor next week but Wednesday’s FOMC will be the closely watched event for any guidance about US interest rates:
- Mon 26th: New Home Sales.
- Tue 27th: Core Durable Goods, CB Consumer Confidence.
- Wed 28th: FOMC.
- Thurs 29th: Advance GDP. Unemployment Claims.
- Fri 29th: Employment Cost Index.
The timing of any US interest rate hike has been a widely debated topic but with many commentators expecting a rate rise this year and this expectation has helped to keep the US$ so relatively well supported over recent months. Last week’s dovish ECB and Chinese rate cut might make this timing more contentious though and adds weight to the possibility that any increase could be pushed out to next year. Next Wednesday’s FOMC will be closely watched to try and gauge just when US interest rates might be set to increase: a rate hike this year could trigger a Bull Flag breakout for the US$ index, however, a delay might moderate the enthusiasm of US$ bulls and trigger a reversal from the recent lofty highs.
USDX weekly: the US$ is back up trading near the upper Flag trend line and could threaten a Bull Flag breakout. A decision to increase US interest rates this year could be the catalyst to affect such a breakout. In that case, any close and hold above this upper trend line would bring the psychological 100 level back into focus. Any respect of this upper trend line though and reversal would bring the lower 95.50 S/R level followed by the lower Flag trend line and, then, the 92.50 level into focus:
EURX weekly: the EUR$ was punished following last week’s ECB dovish commentary. The bearish levels to watch here include the lower Flag trend line and then the 96 level. Any close and hold below 96 would bring the previous low near 94 into focus. Any bullish bounce from here though would have traders watching the upper Flag trend line and, after that, the 105.5 region up near the weekly 200 EMA and weekly 61.8% fib region:
Summary: the USDX is trading near the upper breakout region of a potential Bull Flag whilst the EURX is heading towards the lower trend line of a potential Bear Flag. Interest rate guidance from FOMC has the potential to trigger Flag breakouts on both indices. Bullish and bearish levels to watch on both with FOMC include:
- Bullish: upper Flag TL and 100.
- Bearish: 95.50, 92.50 and the lower Flag TL.
- Bearish: lower Flag TL, 96 and 94.
- Bullish: upper Flag TL and 105.5.