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In today's Daily Observation I will cover the general strength of the USD by analyzing the USDX (US Dollar Index) and I will go over EURUSD and GBPUSD independently. This report will explain the technical outlooks we believe will unfold over the next few trading days.
We will begin with the US Dollar Index.
USDX, Daily Chart
(click on image to enlarge)
The USDX is the average trading price of the USD versus a basket of other major trading pairs, it is one of the best ways to measure to strength and weakness of the US Dollar. Today, just like every trading day, we will be using it to determine what the USD could do in the coming trading days.
The key point in this chart is the head and shoulders pattern which is guiding price higher at the moment. In order for us to increase the odds of a successful analysis we are adding other tools to the chart, such as trend lines, key trading levels, the Exponential Moving Average and the Donchian Channel.
Our current indications are that the USD could remain weaker for the rest of the trading day with price heading lower towards the bottom of the channel where ironically we have the neckline of the H&S pattern the EMA and DC support. We expect the USD to start to gain next Tuesday or Wednesday.
Next Wednesday is a day which brings a lot of key US data such as the Core CPI and Retail sales reports. They could bring USD volatility if they exceed or miss expectations.
Ok, now that I am done with the USDX I want to pick my brain a little and explain what I generally see happening in the markets.
I think the USD will be stronger versus most pairs such as the EUR, AUD and NZD. I think the USD will gain most against these pairs, especially the EUR which I believe will weaken based on technical and fundamental factors which suggest to me that the EUR will take heavy losses this November and maybe December.
My analysis indicates that the EUR has the potential to decrease heavy, as I state above.. this is mainly due to fundamental factors which I am not going to get into now, so for you to see all of this better, let's take a look at EURUSD.
EURUSD, Daily Chart
(click on image to enlarge)
We see the same head & shoulders pattern on EURUSD that we see on the USDX, both indicating a strong USD, however, price action on EURUSD is already very close to the neckline and is using the white trendline as a resistance, the same trend line which acted as a support in recent times is now a resistance that should hold on well. Of-course there are chances price heads above the level and makes a test of the EMA & DC but I firmly believe, based on technical data I reviewed on 6 different EUR pairs that the EUR will finish the trading day in the red versus the USD, JPY and other major FX pairs.
The chart shows you the key resistance level (red highlighted area) and the key support level (white highlighted area). There is not much that can hold EURUSD from dropping hard after the 1.16 level is broken. I personally believe that there are good chances of EURUSD heading much lower and closer to the French elections gap (price: 1.07300) before starting the uptrend again.
But a worthy target is also the 1.13 level which is right now 340 pips away from current price action.
If you are shorting EURUSD you need to remember that all trends and generally larger price movements take time to complete, so don't expect to see fire works from the second you open your trade. The most important factor here is to control what you can control and that is your stop out level, your position size, your emotions, how many times to check up on the trade... what you can't control is how the market moves, how long it will take for price to reach your profit level and of-course the general outcome of your trade.
So, over the next few trading days I expect, based on my analysis, to see EURUSD trade lower. Again, once the 1.16 is broken we should see strong bearish movement on EURUSD.
Let me go over GBPUSD quickly and I will wrap up this Daily Observation
GBPUSD, Daily Chart
(click on image to enlarge)
I have been saying for a while now that the GBP will be strong, and like I mention above, all big moves take time to complete and I really believe, based on comprehensive analysis, that the British Pound will go higher and will end the year strong. I believe that in the next 6-9 months GBPUSD could be trading around or above 1.40.
If you take a look at the weekly chart of GBPUSD you will notice a massive head and shoulders pattern right at the all time low of this pair, to me this is a very strong bullish signal and I am taking it as it is, GBPUSD will head higher especially in the long-term.
Now in regards to the next few trading days (5-7), I believe GBPUSD will head higher and target the 1.34 zone, I am currently buying the pair and will hold on to my trade until the 1.33 level, if the 1.33 level is broken then I will continue to hold on to my trade until the 1.34 level where I will probably get out of the buy trade and look for another entry on a dip. (to buy the pair again).
Thats all I have in store for today. Thanks for reading!
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