Published On: Mon, Feb 27th, 2017

Breaking down the dollar and prime short entries in FX majors

InstaForex

Background

As far as corrective cycles are concerned, the US dollar has scope for one the last spike higher at the start of the week. Two dollar majors – USDCHF and EURUSD – are highlighting ending wedges, so we need to take extra care and not outstay any long dollar calls (short in EURUSD at 1.0588 with stop at entry).

My fears are that Trump’s speech to Congress on Tuesday could be the catalyst for the next big (USD) selloff. 

Monthly – we are long-term bears. The index posted a bearish outside month in January at the Fibonacci confluence area of 102.00 (61.8% pullback at 102.25 / 161.8% extension at 101.95 – please see chart). Last month’s Marabuzo level is situated at 101.15. A monthly close below this level is negative for the index. 
Source: Saxo Bank
Weekly – bounced off the reverse trend line support at 99.56. The last two weeks we have seen rallies being rejected. 

Source: Saxo Bank

Daily – there is a possibility that the bearish head and shoulders has now formed. However, we have yet to see any strong reversal patterns and dips are being bought. A break of Friday’s low and we look for further losses towards the neckline at 99.08.

Source: Saxo Bank

Intraday (six-hours) – moving higher within the corrective AB-CD formation. Prime short entries are 102.00 and 102.83. The fact that we have yet to break above 101.75 (February 15 high) makes me believe that the correction has yet to complete (CD must be higher than AB).

Source: Saxo Bank 

Conclusion:

With this in mind, the safer play this week is to sell into dollar rallies. Below we highlight, what we believe to be, the prime dollar short entry levels. 

Daily – bullish reverse head and shoulder forming. A full AB=CD is seen at the channel base (right shoulder) and the 78.6% pullback level of 1.0446. This in turn will make a bullish Gartley pattern. The fact that we stalled under the 61.8% pullback level of 1.0528 means the correction ‘could’ be complete. 

Source: Saxo Bank 

Intraday (six-hours) – Ending wedge. Are we going to see mixed trading? Will we complete the formation? A break of Friday’s high and the move higher is probably underway. Prime long entry is seen at 1.0446-70.

Source: Saxo Bank


GBPUSD 


Intraday (six-hours)
– bullish five wave count completed at 1.2704. We are now in the corrective cycle lower. Just trying to break a triangle formation to the downside. Prime support is seen at 1.2255-1.2225. This is the 61.8% pullback level and AB=CD formation target. 

Source: Saxo Bank

USDCHF 


Intraday (six-hours)
– Starting to see mixed and volatile trading as we get towards the end of the dollar bull run. Ending wedge highlights limited upside. The trend of higher highs is seen at 1.0158 and ‘lines-up’ with the 61.8% pullback level (from 1.0342-0.9860). Prime short entry. 

Source: Saxo Bank

USDCAD 


Daily
– mixed trading since we broke out of the daily channel formation to the downside. Reverse trend line resistance is seen at 1.3280.

Source: Saxo Bank

Intraday (six-hours) – in a bullish corrective channel formation. An AB=CD would take us to 1.3250, channel top at 1.3255. There is scope for a spike through to the 78.6% pullback level of 1.3295 but, with the daily reverse trend line at 1.3280, this should just be a spike. Prime sort entry 1.3250-80 area. 

 Source: Saxo Bank

— Edited by Jack Davies

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