In my last currency market update, I showed some technical patterns forming in the U.S. dollar and euro that I said may lead to a big move. Because the prior trend was up for the dollar and down for the euro, I questioned whether the resolution of these patterns would lead to another move in the same direction (as these consolidation patterns often do), but I explained that these patterns needed to be confirmed by a bullish breakout in the dollar and a bearish breakdown in the euro for them to be valid.
No such confirmations were given, and these patterns ended up being reversals that occurred after the Fed's FOMC meeting two weeks ago. This is a textbook example of why it is so important to wait for technical patterns to be confirmed. Without confirmation, no signal is given.
Since its recent peak, the U.S. Dollar Index has pulled back to its uptrend line and January high support level. I am watching if the dollar bounces from here as it did in December and February, or if it experiences a convincing break below these key support levels.
Like an inverse version of the U.S. Dollar Index, the euro has rebounded back to its downtrend line and 1.1000 resistance level. I am watching if the euro fails to break these resistance levels, or if it can finally push above them.
If the dollar can stage a convincing bounce off these levels, further weakness in commodities and non-U.S. currencies is likely, and vice versa (due to their inverse relationships). As usual, I am not predicting which way the dollar and euro are headed next, because making hard predictions about short-term market movements is an exercise in futility. Instead of predicting, I identify key psychological or technical levels and take a reactive or "wait-and-see" approach based on how the asset acts at that level.
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(Disclaimer: All information is provided for educational purposes only and should not be relied on for making any investment decisions. These chart analysis blog posts are simply market “play by plays” and color commentaries, not hard predictions, as the author is an agnostic on short-term market movements.)
