I would like to begin by referring back to last week, when I mentioned on my weekly blog, that I was waiting for the Dollar Index to retrace some of the previous week’s upward movement to then continue its appreciation up to the resistance channel. As you can see from the image above, the Index behaved in the way that I predicted, not because I am a magician but because movements retrace 98% of the time. Looking at the Index Dollar in the image above, you can see that the Dollar Index has reached the resistance point within the channel. The question that most technical analysts will ask is whether it will respect the channel and bounce off resistance to drop back within the channel. Or will it break out and continue its depreciation, reaching the resistance marked by the blue line. This week, analysts will be focusing particularly on the unemployment claim, which will be announced on Thursday 27th October. This data will give us an indication of how the economy in the US is performing and will be considered when deciding on monetary policy. The week will conclude with the advance GDP q/q which will have some impact on currency volatility.
Whilst the Dollar Index has been appreciating, the EUR/USD has been depreciating, breaking the ascending triangle, as shown in the image above. If the Dollar Index rejects from the channel shown above, then we will see some appreciation in the Euro. However, if the Dollar continues depreciating, the Euro will continue its decent. I would like to draw your attention to the ascending triangle pattern, which is a continuation pattern. However, as you can see in the image, the Euro has been selling whilst the ascending triangle pattern has shown a buy continuation pattern. It may be that the EUR/USD will not create an ascending triangle (especially since it has broken out the second time) and instead (if depreciation is continued), turn into a rectangular formation, which will ultimately make more sense, because it will indicate a continuation in the sell. For the time being, you can see from the daily chart below, that I have placed the EUR/USD in a downward channel. This week we will need to pay attention to Tuesday 25th October when Mario Dragi will be speaking. This is especially important as we have seen volatility in the market this past week when he was speaking.
Trade idea: As the Euro is selling within the channel, and is nearly at the bottom of it, I will need to wait for a retracement before getting involved in a sell.
By Elkana Roveglia – www.TakeMyTrades.com