The second week of the new year hasn’t been very dramatic, at least for the markets. However, with frightening coronavirus headlines, markets are waiting for tomorrows unveiling of Biden’s economic relief program. Expectations are for “trillions” of dollars in recovery aid. In addition, Powell will be interviewed tomorrow by the Director of the Princeton Bendheim Center for Finance, Markus Brunnermeier. Traders will be listening to Powell’s language to see if he echo’s recent comments that the Fed may look to begin tapering before the end of the year.
On Monday, we discussed the possibility the US Dollar Index heading up towards 91.50/92.00 as the RSI turned lower and price appeared to be biding its time before the next move higher. On a 240-minute timeframe, price pulled back towards 90.00, filling the weekend gap and creating a flag formation. Price may be ready to break out. The target for a flag pattern is the length of the flagpole added to the breakout point. In this case the target is near 91.35. If price breaks out of the flag, it must first get through horizontal resistance near 91.00 and 91.25. If the DXY fails to move higher out of the flag pattern, support is at todays lows of 89.93 before last week’s lows at 89.20.
In the same article we looked at the possibility of EUR/USD heading lower to 1.2053, a 100% retracement of the ascending wedge. As with the DXY, price paused as the RSI hit its lower bound and bounced. EUR/USD traded sideways and now appears to have formed an AB=CD pattern, which targets 1.2020, near daily horizontal support dating back to September 1st, 2020. First support is at yesterday’s lows near 1.2137 before the full ascending wedge retracement at 1.2052. If price moves above 1.2220, the price pattern is invalidated and could head up to previous highs near 1.2345.
NZD/USD has been trading similarly to EUR/USD. Price rose to a high of 0.7315 on January 6th, before breaking lower out of an ascending wedge. The kiwi halted at the 50% Fibonacci retracement level of the move from the lows of December 12th, 2020 to the January 6th highs, near 0.7150. Just as with EUR/USD, NZD/USD appears to be in the process of forming an AB=CD pattern, which targets 0.7075. Price must first break below the lows of January 11th at 0.7264 and the 61.8% Fibonacci retracement level from the previously mentioned timeframe. If NZD/USD reaches the AB=CD target, the target for the ascending wedge is next, near 0.7007. If price moves above 0.7237, the price pattern is invalidated and could head up towards previous highs near 0.7315.
Although this has been a quiet week for the markets news wise, tomorrows unveiling of Biden’s stimulus package and Fed Chairman Powell’s conversation could bring volatility to the US Dollar pairs!