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The week-long rally by the US Dollar has hit the pause button today, as the DXY Index has run into the declining trendline from the highs seen back in April and May. Yet with US Treasury yields continuing to move to the topside (both the 2-year and 10-year), it seems that any US Dollar setbacks are only temporary reprieves before the next leg higher.
Several key USD-pairs have traded into important zones that market participants would understandably use as a pitstop during the rally. USD/CHF’s rally has paused in the 0.9730/70 area, where the range top from May and the declining trendline from the December 2016, March 2017, and April 2017 highs converge.
Elsewhere, EUR/USD’s declines steadied ahead of the 1.1715 area, the August 2015 high that capped price action for nearly two years. Since the break above 1.1715 at the end of July, EUR/USD has been treating this level as support. A break below here would suggest increased validity for the EUR/USD head & shoulders target of 1.1554.
Finally, on a day where the DXY Index is down, it is notable that AUD/USD continues to trade lower. Having broken its uptrend from the June lows, AUD/USD seems to not only be driven by the US Dollar’s reinvigorated posture, but by shifting capital flows to emerging markets: the MSCI Emerging Markets index has fallen for the sixth consecutive session. Should US Dollar strength reemerge, AUD/USD seems like a prime candidate for more weakness.
See the above video for a technical review of the DXY Index, EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, Gold, and US yields.
Read more: DXY Index Faces First Test in Bottoming Effort
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.