Philly Fed leads to major resistance breaks
Since calling a low in the dollar in May (and buying USDCHF at those lows) we saw USD consoldating in an ever tightening triangle pattern. For the last 3 months we have identified this as a “wave 4” type consolidation pattern and said to stand aside, putting our capital behind the peso and Australian dollar during this “waiting period.”
As you can see in our chart of USDX below, this waiting game is almost over with another expected headfake higher in USD in “wave e of 4”. Each week we reiterate “fundamental” rational for why we could easily see a major move in EURUSD, which will be the main driver of dollar index direction. Today, that impulse came from the Philly Fed data that allowed EURUSD and AUDUSD to breach major resistance levels, benefiting dollar short positions that we called out earlier in the week.*
Note that it appears the breakout move materializing in EURUSD will coincide with a “wave 3” rally in MEXUSD, which will be quite advantageous.
If “wave 2” indeed holds at 0.905 then we think a wave 3 rally to 0.955 is now in the cards. We recommend buying in the box area below from 0.08950 to 0.09105 for an explosive move higher.
For the euro, the consolidation continues but is nearing the end of “wave d” with a “wave e” move to come followed by a breakout.
The dollar index remains in a consolidation pattern. We look for completion of “wave d” to mark a sharp selloff, giving us the green light to buy the dip via USDCHF. However, only a sustained move through 86.00 would suggest a larger rebound was underway.
*Near-term currency-specific trading signals are available through the FxSignalZone service on our website.
Jes
Black is the fund manager at Black Flag Capital Partners and Chairman of
the firm’s Investment Committee, which oversees research, investment and
trading strategies. You can find out more about Jes at
BlackFlagForex.com.
Prior
to organizing the hedge fund he was hired by MG Financial Group to help
run their flagship news and analysis department,
Forexnews.com. After four
years as a senior currency strategist he went on to found
FxMoneyTrends.com – a research firm catering to professional traders.