In my last weekly currency forecast, I was expecting the Dollar Index to appreciate to the 102.00 price area. As you can see from the chart above, after using the support price level at a 100.70 price area for two days, the Dollar started to gain ground until Thursday. Friday ended up being a big sell market. The above chart shows some retracement to the 50% Fibonacci level, which could be a significant level for the bulls, as we had a similar retracement last week, which implied a continuation was due.
As you can see from the chart, there is a high probability that the Dollar Index will continue to appreciate, however if the price continues to sell, breaking the diagonal support marked by the thin yellow line on the chart, it will start to communicate that either the appreciation is over or a deeper retracement, which will ultimately lead to more appreciation. This week, I will continue to look for a strong support and a stronger US Dollar (i.e. still a bull market).
Contrary to the Dollar Index which created new highs, the EURUSD failed to create new lows which planted some doubts in the mind of the bear trader, who is looking to continue to sell the Euro. I can see that in this past week, the market has proved to have found a strong support at the 1.0500 price level, whilst seeing the Euro appreciate strongly on the Friday session when the Dollar index started to sell. Could this be a decisive message from the Big Boys to us retail traders that they are ready to turn the Euro into a bull market?
As you can see from the above chart, I have marked a possible strong resistance with a black horizontal line. This coming Thursday, we are expecting an interest rate decision in the Euro and Mario Draghi will have a ECB press conference. From previous experience we do know that volatility increases during his speech.
Trade idea: I am expecting that there will be some sell in the first part of the week and a probable re-testing of the 1.0500 price level. Thursday could end up being either the start of a clear direction or could come to nothing. If instead the price breaks the resistance level marked by the black horizontal line, then you will want to listen to my weekly currency forecast by clicking here as I give instructions on what to look for and when to start trading it.