Brexit delay stalls US dollar decline
Tony Sycamore October 23, 2019 5:35 AM
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.
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
TECH-FX TRADING PTY LTD (ACN 617 797 645) is an Authorised Representative (001255203) of JB Alpha Ltd (ABN 76 131 376 415) which holds an Australian Financial Services Licence (AFSL no. 327075)
Trading foreign exchange, futures and CFDs on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange, futures or CFDs you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange, futures and CFD trading, and seek advice from an independent financial advisor if you have any doubts. It is important to note that past performance is not a reliable indicator of future performance.
Any advice provided is general advice only. It is important to note that:
- The advice has been prepared without taking into account the client’s objectives, financial situation or needs.
- The client should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before following the advice.
- If the advice relates to the acquisition or possible acquisition of a particular financial product, the client should obtain a copy of, and consider, the PDS for that product before making any decision.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.