With the recent headlines coming out of both China and the US, risk appetite has come under fire. However, the EUR has done reasonably well in that same amount of time, bouncing from a major uptrend line on the daily chart, and breaking above the 1.2350 resistance barrier. I believe that short-term pullbacks will continue to be buying opportunities, and that we should then go to the 1.25 level above which is going to be major resistance. Once we break above there, the market would be free to go to my longer-term target of 1.32, but that is based upon weekly charts, and a breaking above the bullish flag that formed on the weekly chart. By doing so, it looks as if we are ready to go higher eventually, but those moose take a while to form.
Recently, there has been talk about the ECB tightening a bit, and that of course has put a bit of a fire underneath the pair as well. If the conversation between the Chinese and Americans can calm down a bit, that gives the global markets a bit more of a “risk on” feeling, and that should help this market. If we break down below the 1.2350 level, then I think we need to go down to the 1.23 level to find support. I also recognize that the major trend line underneath should continue to offer support, so I think that even if we do pullback, it will eventually be a buying opportunity.
The British pound initially pulled back during the trading session on Wednesday, reaching down towards the 50 EMA on the hourly chart near the 1.4150 level. By doing so, we bounced enough to reach above the 1.42 level, and it now looks as if we will go towards the 1.43 level after that. A break above that level could send the market to the 1.45 handle later, and I think that short-term pullbacks continue to be buying opportunities that we will take advantage of. I think that the 1.4150 level underneath is going to be significant support as well, and if we can break above the 1.43 level, then we are free to go to the 1.45 level which is my longer-term target.
This pair, like many other Forex pairs, will be trading based upon risk appetite soon. That means the US and China conversation. It also will be influenced by the conversations between Brussels and London, but now it looks as if the British pound is starting to catch favor and more importantly, momentum. I believe that we continue to see buyers on dips, unless something catastrophic happens on one of those 2 fronts I mentioned previously. Currently, I look at this as a “buy the dips” type of situation, and I would do so in small positions. Eventually we will break out, but I think we have a lot of work to do before that happens.
The Australian dollar has been rather noisy during Wednesday trading, pulling back to the 0.7730 level, but finding a support level near the 0.7350 level overall. By doing so, we had formed a “W pattern” on the hourly chart, and it looks as if we are ready to continue going higher. With that in mind, I believe that the market will eventually go looking towards the 0.78 level above, and then the 0.79 level after that. We had recently tested a major uptrend line and found it to be supportive, so I think that we will continue the same upward grind that we have seen since December 2016, and therefore I believe that we will not only reach the 0.81 level again, but we will eventually break above there.
Pay attention to the gold markets, they always have their influence on the Aussie dollar, but in general right now it looks as if the US dollar is being sold off in a bit of a “risk on” move. If trade tensions don’t get worse between the United States and China, that should help the Aussie as well, as Australia is such a major exporter of raw materials to China. All things being equal, this trade comes down to the trade tariffs, or lack of, between the United States and China more than anything else. If tensions fall, this pair rises and of course vice versa. I think at this point; the 0.77 level should be thought of as a bottom.
The US dollar has pulled back a bit against the Japanese yen during the trading session on Wednesday, reaching down towards the 106.70 level before bouncing a bit. At this moment, I believe that we are trying to form some type of consolidation between the 106.50 level and the 107.50 level. This is quite common in this type of environment, as it could be indicative of the market trying to build up the necessary momentum to break above a major resistance barrier. Because of that, I think that we will see a lot of choppiness in this market, especially when headlines crossed the wires coming from either Beijing or Washington DC about potential trade tariffs. I don’t think things are going to escalate much, and if that’s the case we should see this market rally.
Alternately, if things do heat up between the 2 economies, then I think the market probably drops down to the 106 level rather quickly, with the 105 level under there being even more supportive. That is an area that should continue to be important, because it is not only a large, round, psychologically significant number, but it is also where a nice uptrend line coincides. Because of that, I think that the market will continue to be very noisy, yet heavily supported in that area. I have no interest in shorting this market in the short term, I believe that eventually we will break out.