Today’s price action in the US Dollar (DXY) gave the markets reason for a pause in its ascent back towards the recent highs near 99.00, closing below key resistance near 98.20. On a daily candlestick chart, today’s bar was a perfect shooting star! This one candle formation is generally a reversal signal in which bulls come in early and push the market higher. However later in the day, sellers take control and push the price lower to close near the opening price.
Source: Tradingview, City Index
Think about the psychology here for a minute:
Buyers pushed the price above 98.27 resistance (blue line), which takes out the stops of anyone who placed them just above that resistance level, causing more buying to occur. Once weak shorts have been stopped out, sellers come back in and push the price lower. This triggers stops of any weak longs who entered the market above the 98.27 resistance level, causing those buyers to get stopped out and therefore pushing price lower. The next day, selling typically continues and price closes lower on the day.
Therefore, if price continues lower in the US Dollar on Monday, US Dollar bears may look to buy Euros and GBP vs the USD, as these two currencies make up a majority of the DXY Index.
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