Interested to trade the US dollar? Here’s an overview of the most popular pairs as of press time:
The USD/JPY pair is approaching its April lows, as the pair is currently at 111.317 as of this writing. Traders who are bullish on the pair tried to move it past its resistance area of 112 last week, but encountered immediate selling pressure.
Another sign of its weakness is the fact that it cannot stay above its 20 day moving average of 111.70, and the longer term 200 day moving average of 111.50, which are now also acting as resistance levels.
Hence, there is a confluence of resistance levels from 111.50 to 112, which may indicate that the bulls will find it challenging to move the price past those levels. The immediate support is currently at 111, but the RSI and MACD oscillators are still pointing down, indicating that momentum has not picked up yet.
Looking at the Ichimoku Kinko Hyo indicator (which is a combination of different moving averages which are not limited to only the closing prices), it is still barely above the blue kumo and its Kijun-sen, hence it still is bullish, but already at its support area.
Looking at a bigger picture, USD/JPY may still be looking at some bearish price action, and it will not be surprising if it will reach its April low of 110.839, or even go below that in the succeeding days. Hence, going long USD/JPY may not be advisable from a risk and reward perspective.
The EUR/USD pair is currently looking like it is printing at its support, as there is some bullish divergence between its price and RSI. The price created a new low, but the RSI did not, which might indicate that the bulls have strengthened their case, or those bearish EUR/USD might have been exhausted for the near term.
Bullish divergences, although it can be construed as price strength or exhaustion of weakness, need to be confirmed first by bullish price action – meaning that it has to move above past its current lows.
As of this writing, EUR/USD bulls are still trying to move it past an immediate resistance level of 1.121/1.123. The 20 day moving average (1.123) is acting as its immediate resistance.
Its 50 day moving average of 1.127 and 200 day moving average of 1.142 also acting as possible resistances above. Since the faster moving average is below the slower ones (50 and 200 day), that is indicative that the trend is still down, but it is finding support.
Checking out the Ichimoku Kinko Hyo indicator, it still below its pink kumo and Kijun-Sen, however it is currently testing this resistance area. Since Ichimoku Kinko Hyo is also a combination of moving averages, it could be used to show the trend, and possible support and resistance levels.
Looking at a bigger picture…
The EUR/USD may find some bullish price action for the near term. And although the risk reward ratio may look to be favourable by going long, keep in mind that the trend is still down, thus supply should still be expected.
The GBP/USD pair has been gaining momentum for the past few days, it is currently trying to move past – and close above its 200 day moving average of 1.296 and its 20 day moving average of 1.302.
It is still navigating along this confluence of resistance levels of 1.30 to 1.31 (also its 50 day moving average is around 1.31), whether it will be rejected by this area is yet to be seen, but the RSI and MACD indicators show that momentum has been picking up after it tested its support this week (1.28).
Although it looks that it is ranging around this area, hence the moving averages may not be as useful, as sideways movement tend to just chop around these averages.
Checking out the Ichimoku Kinko Hyo indicator, it is below its blue kumo, but it’s trying to get back inside the kumo/cloud. It might indicate that it is still ranging. Ichimoku Kinko Hyo is a combination of moving averages, it could be used to indicate the trend, and possible support and resistance levels.
Looking at the bigger picture, GBP/USD looks to still be ranging, but momentum seems to be picking up. With the weakness of USD across the board the past few days, it pays to monitor this particular pair as well.
Why is the dollar weak all of a sudden?
It is evident from the different dollar pairs that the US dollar is being sold down for a third consecutive session.
What’s the real story?
The US dollar index (DXY) just broke out of its 97.6 resistance area last week, but immediately right after, it was met with supply.
Was it a case of a false breakout, or just a re-test of its previous range?
The answer to that is still not definitive as of this moment; however indicators are showing that the strength is weakening.
There is a bearish divergence between its price and RSI (bearish divergence is defined as the price printing a new high, yet the indicator – RSI in this case – does not).
But just as the case with the divergence on EUR/USD, it needs to further confirmed by price action. Otherwise, it is not advisable to take a position (short) basing on that divergence alone.
A possible cause of that weakness is that the US Fed, in its meeting this week, is generally expected not to raise interest rates in the near term.
As economic news coming from the US indicates that there has been substantial growth:
• Its economy grew by an annualized 3.2 percent in the first quarter of 2019 which easily beat the market’s expectations – as it was just 2 percent.
• Consumer spending was also up by 0.9 percent from its March data, again above the market’s expectations of 0.7%. And also substantially up when compared to its February data of just 0.1 percent – this was the biggest increase in consumer spending since August of 2009.
• US new home sales also registered an increase of 4.5 percent from the previous month, which is also the highest level since November 2017. It was the third straight monthly increase in this department.
• Inflation numbers also indicate that it has weakened, as based from the most recent report; it was just 1.5 percent, which is below the 2 percent goal of the US Fed. Various analysts have said that it it’s a reason for the Fed to postpone further rate hikes until inflation, again, is going higher.
The FOMC (or the Federal Open Market Committee) is due to release its statement at 2 pm EDT on Wednesday (1800 GMT), at the end of its two-day meeting. Its chairman, Jerome Powell, will discuss it during the press conference, which will be held after the meeting.
Analysts at Deutsche bank have said that, faced with conflicting data of continuing and mildly surprising economic growth and an inflation rate that is below target, “the Fed should keep policy on hold at its May FOMC meeting as it navigates the tug-of-war”.
Why does this matter?
It matters as raising, lowering, or keeping the interest rates as they are, is dependent upon different economic data. Low interest rates encourage consumer borrowing and spending, hence increasing economic activity and growth.
However, low interest rates would also discourage the attractiveness of a nation’s currency as investors would gain less if they will if they will buy its currency. Inflation increases if demand exceeds supply.
On the other hand, increasing interest rates would help lower inflation by discouraging borrowing, and subsequently spending.
The decrease in economic activity would then be captured by the decrease in economic growth. However, it will make the nation’s currency more desirable, because investors will gain more if they will buy (or go long) on that nation’s currency.
Hence, the dilemma, as analysts will put it. There is a dichotomy between an improving economic growth, and below-target inflation.
Here’s the deal:
As far as trading the different dollar pairs mentioned above, it may be safe to assume that the longer term scenarios as stated above might very well tend to hold, but the real movement (up or down) will occur after the US Fed has made its announcement.
For now until the end of the meeting, we can expect the price movements to be moving in a tight range, but the momentum bias (dollar strength decreasing remains as is).
We can analyze data, the possible movement, or the directional bias, but still the future is always uncertain and we should also include in our plans what we ought to do, if our analysis will be proven wrong.
Taking advantage of data
How can you actually use this?
People at home can also leverage the data and analysis, and trade these currency pairs like what the investment bankers are doing.
The people working in investment banks have tons of data to work with in order to gain an advantage to profit from the directional bias of these foreign exchange movements.
However, several brokers already have the technology, a platform in order for price data to be accessed by people at home.
These platforms are a way to level the playing field in order for those who are not working in those big investment banks, be able to objectively decide and analyze on what a profitable course of action may be. One of those brokers is Pepperstone.
• Pepperstone could be accessed at www.pepperstone.com.
• It is an online Forex and CFD brokerage that has been in business since 2010.
• They offer several platforms to choose from, among them are MetaTrader4, MetaTrader 4 Mac, MetaTrader 5, Web Trader, cTrader, and many more.
• They could offer a maximum margin of 1:500, thus providing substantial leverage in order to further take advantage of those decisions that prove to be correct (although risk management is always a must as well).
• There are 70+ tradeable assets, ranging from the different forex pairs, commodities, Index CFDs, precious metals, energy, soft commodities, cryptocurrencies, etc.
• It allows for different payment methods (example of which are: credit/debit cards, PayPal, Skrill, Banc transfer, etc).
• It also has a demo account if there’s a need to test trading plans or trading theories without putting real money at risk.
• It offers one of the lowest spreads in the industry. Why are low spreads important, you might ask? It is important as it could be seen as the cost of the transaction. The larger the spread, the more expensive a buy/sell transaction is because of the slippage that it entails.
• It also offers Autochartist to live account holders, it is a feature which offers an automated pattern recognition among its trading signals.
• It also offers Smart Trader tools for Metatrader 4. Smart Trader Tools assists traders by providing advanced trade execution and management, and decision assistance. Among the applications are: Alarm Manager, Correlation Matrix, Connect, Correlation Trader, Market Manager, etc.
• The customer service department can be reached via phone support, email, and live chat as well.
• And finally, Pepperstone is regulated.
We can’t emphasize enough…
Although the there is more than enough data that is provided to make educated buy and sell decisions (and possibly profit from buying low and selling high, or buying high and selling higher, or maybe short selling even), it is imperative that risk management should always be part of a trading plan and execution; as a trade could go very well against us, as well. Thus, resulting into losses.
What’s the bottom line?
Analyzing the different events that are happening around the world on a macro-economic scale could prove to be profitable.
And trading your favourite or trending forex pairs, or maybe even CFDs at Pepperstone, will enable those trading at home the similar advantages as those trading in those big investment banks enjoy.
And the best part?
This could be done at the convenience and comfort of your own home. Here’s a final reminder to always remember the risk that it entails. Rewards are proportional to their corresponding risks, especially if leverage is being used.