US Dollar Index Shows Potential Breakout Looming – September 24th 2015 FX Commentary
As you can see in the chart below the US Dollar Index has been compressing for the last few months. The reason this should be of interest to all forex traders is that the next direction of the EUR/USD and GBP/USD is heavily tied to what we see happen in this chart. If your looking at your forex charts right now then I would recommend pulling up a weekly chart of the EUR/USD and GBP/USD. While the Pound is very similar, the Euro is almost identically inverse to the Dollar index.
What clues do we have to the next direction of the market. The most straight forward clue is the large stop run we see on both the Dollar index and the EUR/USD especially. On the weekly chart of the EUR/USD there is a very clear stop run above the previous highs that was quickly rejected back down below the previous high. The US Dollar index is an identical inverse mirror to the EUR/USD as well. If this stop run holds true then further downside should be expected on the EUR/USD longer term and the GBP/USD will more than likely follow if this does hold true. While the question still remains, we are coming to the end of this chapter and we will have the answer very soon. Make sure to keep an eye on this formation and more importantly the break of it.
Euro Has Major Surge On Pound
If you take a look at the EUR/GBP you will see some major weakening of the Pound and conversely major strengthening of the Euro. Right now the EUR/GBP is running a very wide channel that is quite clear if you look at a 4H chart. Notice how we are testing the highs of that channel right now? This is going to give some quality insight into today’s expected price action and the best trades to take. Should the EUR/GBP begin to break and hold above that channel then any Euro long will begin to look much better. Conversely, if that same break and hold happens I would use serious caution on any Euro short and get the stop to break even quickly.
For today I will continue to keep an open directional bias on the EUR/USD. We have some quality upper manipulation points from which I would look to potentially go short should a valid stop run occur from that level. Additionally we have one really substantial lower level from which I would look to get long. At this point I would favor a EUR/USD short from one of the upper levels but a break above the 4H channel on the EUR/GBP would make me have some serious concerns about doing so. Should the EUR/GBP hold the channel high and we see a stop run of an upper level we could have a quality short come together. As always this is all opinion until the price action provides a valid trade setup from on of the pre-selected manipulation points.
Pound Gets Slammed Again
For the fourth day in a row the GBP/USD gets hammered. We are going to be coming into a major daily low and I would love to see a stop run of that point but only time will tell. Its important to remember that just because something has moved a long way doesn’t mean it has to stop and turn around. Those who took that opinion during 2008 got wiped out as both the EUR/USD and GBP/USD tumbled more than any trader living had ever seen. The bottom line is we are seeing the beginning signs of risk aversion in combination with an extremely weak UK and UK data and that have the Pound getting tossed around.
As always let the price action make the decision for you. The only thing I don’t like about markets like this is it always lowers our trade count. During aggressively trending markets we will always produce far less trades. Every single forex trading strategy has a market that is prefers. The bank trading strategy is a day trading strategy that favors a more range bound market. That is a good thing given the fact that 70% of the time the market is range bound. With that being said during the 30% of the time where we see heavy trends we are often on the side lines. So many times traders try to focus on catching every single move and never end up mastering one. Don’t get caught trying to catch every move because no one does. Focus on one trade setup and learn to trade it successfully before moving on to learning something else.
Today with the GBP/USD, given the large moves we have seen the market simply has not produced really quality manipulation points. I have one upper manipulation point listed on the chart below but I would personally not be trading from that level as I feel it is a bit more aggressive. In fact in the daily video preview that I do for members where I list the exact manipulation points I will be using down to the exact pip, I do not have an upper level listed. As I also discussed in that video, if we are going to get a short opportunity then we are going to need to see the market form a new valid upper manipulation point during the day. The lower level you see listed is however quality. I would expect a lot of eyes and therefore a lot of liquidity to be focused on that level.
Forex News For September 24th 2015
German IFO 4:00 AM Eastern: IFO has a habit of reversing the price after the news is released. This is not a bad thing if the trend has already been established and then the market spikes against the existing move as it allows a high probability entry for trend continuation. Additionally if the news spikes into previous support or resistance it is likely to fail. The only exception to this is when you get a 1.5 +/- deviation from the expected number. In that circumstance I would not be looking to trade against it. This month 107.9 is the expected number.
US Core Durable Goods 8:30 AM Eastern: This month .2 is the expected number and a deviation of .5 +/- is more than capable of creating a 15+ pip spike. Like German IFO, US Durable Goods more often than not is used to reverse the price and as such do not be surprised if the spike fails. The only exception to this would be a massive deviation from the expected number.
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