The first three quarters of 2019 proved to be challenging period for FX traders as the U.S. dollar index, the DXY endured more whipsaws and reversals than the Wild Mouse rollercoaster ride at Sydney’s Luna Park. However, the month of October has been worth the wait as the U.S. dollar fell sharply against several key G10 pairs.
In recent articles and videos, we have consistently highlighted the risks of a U.S. dollar pullback, principally against the AUD the EUR. Earlier this week the AUDUSD all but reached our .6895 target area. Likewise, the EURUSD, which fell just short of our upside target, the 200-day moving average 1.1210 area.
Because we viewed the U.S. dollar pullback as a countertrend move it was advised scaling out of long AUD and EUR positions into strength. From October 17, the EURUSD now appears set for a run at the 1.1111 high of September, with scope towards the resistance coming from the 200 day moving average at 1.1210. We would use this opportunity to raise the stop loss on longs to 1.0970ish and look to take profit, scaling out at the topside resistance levels mentioned above.”
This proved to be the correct strategy after another reminder overnight there are few things that can stop a show like Brexit. The defeat of a vote to fast track Brexit (308-322) was the catalyst for a short covering rally in the U.S. dollar against GBP and other key pairs. Mindful that after a -2 ½% fall and with the RSI indicator approaching oversold levels, the overnight bounce in the U.S. dollar is not unexpected and appears to have further to go.
Specifically, the target for the current U.S. dollar bounce is towards the 97.80/98.00 resistance area. Providing the structure of the bounce displays corrective characteristics it should be viewed as a minor Wave iv, and a selling opportunity in expectation of another bout of U.S. dollar weakness towards trendline support 96.60/50 area for a minor Wave v.
Keep in mind that if the DXY index breaks and closes below 96.60/50, it would confirm a medium-term U.S. dollar top is in place at the October 1 99.67 high and that a deeper setback towards 94.00 is underway.
Source Tradingview. The figures stated areas of the 23rd of October 2019. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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