The US Dollar Index has been consolidating since March 2015 (see the top 2 green candlesticks marked by the green arrow), forming and respecting a support area since May 2015 (see red 2 candlesticks marked by the red arrow). Although the Dollar has been consolidating, any trader can observe the resistance marked by the yellow single trend line. Below the yellow trend line we are seeing a weakness in the US Dollar. This week every investor and news trader will have their ear glued to the radio or TV on Wednesday, 21st September to see if the FED makes any changes to the interest rate. Any kind of interest rate hike will see the US Dollar strengthening. No change (or cut which is quite unlikely) will see the Dollar weakening. Whatever the news brings, a few things will need to happen technically to decide if the Dollar is ready to strengthen again. Technical analysts will want to see the Dollar not only breaking the resistance level caused by the FED news, but also a continuation of the move, which will see the Index gaining strength and ultimately move towards the resistance marked by the blue line. If this is to happen, there are two things that traders need to consider before buying:
1) How long will the move take to reach the resistance level (marked by the top blue line)
2) Which pattern(s) will they form to make traders buy?
A strengthening of the Dollar will imply a weaker Euro, Sterling, $ Australian and $ New Zealand.
As per the $ Index, the EURUSD has also been consolidating, whilst creating an inverted relationship at the same time. If you look at this pair close enough against the $ Index, you can immediately see opposite moves. Euro investors and news traders will not only pay attention (like everyone else) to Wednesday 21st but also to Thursday 22nd as Mario Draghi, the president of the European Central Bank, is due to speak on that day. Technically the EURUSD, in the weekly time frame, is forming what appears to be an ascending triangle which is a buy pattern. At the moment we are not yet ready to break the resistance so there are no long-term buying opportunities. How do we then trade the EURUSD? This week is a quite a critical week for most of the major currencies and especially for the Euro as two fundamental announcements may affect its future movements. Looking technically at how this pair is at present, I will not trade it this week unless I see a clear pattern that forms. Traders may be tempted to trade the EURUSD before Wednesday, but they need to bear in mind that the pair may not have any volatility resulting in them being ‘stuck’ in a trade. Traders will need to consider this in the first part of the week before taking the leap. The smart trader will put this pair on the shelf and look to trade other currency pairs.
Written by Elkana Roveglia