The US dollar index is marching even higher ahead of the FOMC (Federal Open Market Committee) meeting this week, and many are looking for a break from even higher levels.
Let’s try to build a case of a temporary top in the rising US dollar and see if we have enough tools to call it:
ECB (European Central Bank) and BOJ (Bank of Japan) are the only major central banks still in pursuit of higher inflation levels through ambitious quantitative easing (QE) programs. That being the case, any move lower on the US dollar as a result of a dovish Yellen at the press conference today, and you can look for EURUSD and USDJPY to be more resilient than, say, GBPUSD or AUDUSD.
The BOE (Bank of England) has the ASP (Assets Purchase Program) intact, but if history is any indication, they will end it sooner than the Eurozone counterparts. The Bank of England always followed in the footsteps of United States monetary policy. This brings into question any EURGBP strength that might arise, therefore the path of least resistance for the pair seems to still be to the downside, favoring a break below the all-important 0.70 know and targeting an even 0.65.
The CAD (Canadian Dollar) currency pairs are dancing with the oil market, and this makes it difficult to analyze them only in terms of what the US dollar is doing. However, at least on the USDCAD, pair we have a bullish triangle that broke higher on the daily chart but the price action out of it should be limited. It doesn’t mean it should/will not try to break the 1.30 as the round numbers are always attracting, but I would not insist on the long side there. Actually, from my point of view, the USDCAD offers a major opportunity to the downside by the time the 1.2880-1.2930 level comes, with 1.2600 in the target.
Staying with the CAD pairs, one pair that deserves attention is the GBPCAD cross as, on the bigger time frames, (the daily and even weekly charts), it is still weak and should reach around 1.85 before any meaningful bounce is possible. This favors a resilient GBP to the upside on any Fed reaction, at least until 1.85 is reached.
Of the above options, I like the USDJPY to the upside until, say, 122.50-80, and then trying to look there for a short opportunity, while the USDCAD looks to form a bearish/toppish pattern that should dampen any rally. If this happens, we can say a temporary bottom in the US dollar rise is in place, and this means the Fed will keep one, or even both key elements as part of its forward guidance language: “patient” and “considerable time”.
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Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
