Talking Points:
-Stronger currencies (British Pound [GBP] and Australian Dollar [AUD]) have entered into a multi-year resistance zones
-US Dollar moves lower after Fed meeting, but retraces most of resulting weakness
-Euro (EUR) gains on Fed meeting and holds onto those gains to finish the week strong – entering the EUR Basket Buy Trade
Last week, we highlighted how the British Pound strength has been holding up for several weeks in a row. As you can see below, the GBP is ranked as the 3rd strongest currency and that strength continued into the Fed meeting on Wednesday which helped our GBP buy basket trade.
However, the GBP has strengthened enough push into 4 year resistance on the GBPUSD chart. As written last week, “I will abandon the bullish bias on the Pound if the GBPUSD exchange rate trades up to 1.6000.” Therefore, be on the lookout for Pound weakness.
Additionally, the Australian Dollar revisited a former breakout level near .94 to.95. This zone was previously supported by swing lows in October 2011 and June 2012. A common pattern in technical analysis is when former support, when broken, often acts like new resistance.
Even though the AUD ranks as the 2nd strongest currency below, the recent move back into the resistance zone puts the AUD is at risk of losses for the coming week.
Forex Strategy: Matching Strong versus Weak
| Currency | Up Arrows | Down Arrows | Change From Last Week |
| 7 | 0 | Higher1 rankings | |
| AUD | 6 | 1 | Lower 1 ranking |
| GBP | 4 | 3 | Lower 1 rankings |
| 4 | 3 | Higher 4 rankings | |
| EUR | 3 | 4 | No Change |
| 2 | 5 | Lower 1 ranking | |
| 2 | 5 | Lower 2 rankings | |
| 0 | 7 | No Change |
Chart created by DailyFX EDU Robert Warensjo
The Federal Open Market Committee decided this past Wednesday not to taper the purchases of treasury securities and mortgage backed securities. As a result, the US Dollar immediately sold off. However, by the end of the week, the USD began to recover a good portion of those losses.
Additionally, the USDOLLAR briefly spiked below the 200 Day Simple Moving Average, then rebounded higher. The USD price action towards the end of the week has me thinking the bearish spike on news may be the last leg of the recent bear trend. We will let that thought simmer and will revisit the potential for USD strength towards the end of the week.
The currency trade opportunity for this week rests with the Euro. As the USD was rebounding, the Euro wasn’t backing down. As a result the EURUSD pair finished the week on its highs. Also, when looking at the EURUSD weekly chart, there is a cluster of resistance in the 1.3750-1.3850 range. Therefore, this indicates to me that although the USD may perhaps find support, the EUR still has room to run higher against the USD.