The NFP data was definitely stronger than the previous month although the USA has seen a rise of 0.1% in unemployment and a fall of 0.1% in how much business pay for labour (average hourly earning m/m). Although President Donald Trump and his team are working hard at rebuilding a stronger USA by incentivising companies to bring back industry to the country, it is too early to judge whether this tactic will help the USA get back on top. A weaker Dollar at present is normal and is due to a number of reasons – a new president with new but yet unclear plans, as well as his aim to bring back jobs to the USA.
Whilst I take into consideration the USA economy – its changes and the global financial sentiment – I cannot ignore the technical analysis the Big Boys are creating in the charts. As I have marked in the above Dollar Index chart, I see a potential Falling Wedge pattern which could indicate that the Big Boys (financial institutions and banks) are becoming a little more positive about the current change (a reminder that a Falling Wedge pattern is a reversal pattern which indicates a stronger US Dollar in the long run).
Although the Big Boys are betting on a stronger US economy, that doesn’t mean that they are 100% sure about it, which means that a probable Falling Wedge pattern created at present can easily be transformed into a downwards channel, by continuing with the sell. This week I am looking for a weaker Dollar to test resistance at the 99.00 price area as indicated by the red arrow. I give more explanations in my weekly currencies forecast which you can view by clicking here.
As the US Dollar tests a lower price level, we see the EURUSD testing new highs. Even though the Big Boy traders are creating a Rising Wedge pattern – which communicates that a sell is near – I am still looking for a buy continuation. On the daily time frame as well as the 4 hours, the EURUSD is forming a continuation pattern called Rectangular Formation. Last week, this currency pair, tested the 1.0800 price area for three consecutive days and ended up breaking it. In my last weekly blog, I was looking to buy the EURUSD up to that price.
Trade idea: This week I am continuing with a view to buy the Euro vs the US Dollar up to 1.0850 / 1.0900 price level. If the US Dollar Index continues its depreciation, the EURUSD will continue to make new highs. A piece of advice for the novice trader: having a tight stop loss, if you are looking to buy, will be very risky due to the uncertainty. In order to avoid being stopped out, you are looking to have 150 pips stop loss from the current price (1.0784) with a profit of only 77 pips (as first the target). This trade becomes risk adverse. My tip is to either wait for a retracement towards the 1.0730 price area, which will reduce your risk and increase your reward. Be a smarter trader