In the latest Forex Weekly Outlook, we see a number of markets continue to trade outside of the long-standing Brexit range. While we’ve finally started to see these pairs trade outside the range, it’s still undetermined whether these moves are outliers waiting for a corrective move or the beginning of a series of new trends.
The U.S. Dollar Index had a bullish week with significant gains occurring that keeps the market above the Brexit range. We hope this isn’t just a new high that will see corrective movement. Our key VantagePoint level for the week is 96.618. We closed well above that on Friday at 97.520 and the farther away we get from that key level, the more likely it is to see a retracement. So hopefully we will see that key level rise along with the market. The RSI sits at an 88.9 value that suggests overbought territory and raises the likelihood of a corrective movement.
The SPY had a down week on an overall flat run due to the increased threat of rate hikes. We closed well below the key VantagePoint level of 2144.42 and are going to look to climb back to that level if we have any hope of sustained bullish action. A close of 2126.90 from Friday will make that very difficult as equities across the board are feeling the downward pressure.
Oil saw a positive week as we see a high form around 52.00. While this may be news-driven rather than demand-driven, it’s worth noting the key VantagePoint level for the week is 49.17 compared to last week’s close of 50.75.
Gold has given back all of its gains from the Brexit vote. It returned to the Brexit low range line with a close of 1253.10 last Friday. The key VantagePoint level is 1261.10 with shorts favored if it stays below that value.
Intermarket relationships are always key when trading Forex. It’s extremely important to understand these relationships so that you can use them as leading indicators for other markets. Remember that the intermarket relationships will traditionally overpower any indicators you may be working with.
Forex Weekly Outlook for Major Pairs
Forex pairs are highly influenced but the global equities and understanding the relationships will almost certainly add to your success as a Forex trader.
Euro/U.S. Dollar (EUR/USD) felt the bearish move of gold this week as it too closes in on the Brexit low. We closed at 1.0971 on Friday, well below the key VantagePoint level of 1.1123. Be on the lookout for a corrective move this week, even if it is just back up to the VantagePoint level. Most of our indicators suggest continued bearish expectations, but the RSI is extremely low at 11.5. This could trigger traders who capitalize on oversold signals to get long.
U.S. Dollar/Swiss Franc (USD/CHF) capitalized on the intermarket relationship it has with EUR/USD with a nice break through the upper Brexit range. The key VantagePoint level for the week is 0.9806 with many indicators suggesting continued bullish momentum. The only area of concern is the RSI. A value of 76.8 doesn’t leave much room before we enter overbought territory
British Pound/U.S. Dollar (GBP/USD) continues to be in a state that is best watched from the sidelines. We did see a swing low last week, but it was the result of a flash crash. We’d consider continuing to stay away from this market until it stabilizes. If you are interested in this market, the key VantagePoint level for the week comes in at 1.2606. There are a lot of mixed signals coming from the indicators that make it difficult to determine how this market will look on Friday.
U.S. Dollar/Japanese Yen (USD/JPY) saw a decent week of bullish momentum that tested the recent swing high from a few weeks ago. We closed on Friday at 104.14 and come into the week with a key VantagePoint level of 102.83. While some traders are hopeful of a return to the upper Brexit range level, the indicators are saying “not so fast.” The medium term crossed over the long term to the downside and the RSI is sitting extremely close to the overbought zone. Beware of a corrective move occurring sooner than significant bullish movement.
The Commodities Currencies
U.S. Dollar/Canadian Dollar (USD/CAD) was able to continue to trade outside of the Brexit range, thanks to the bullish moves we saw out of oil this week. The strong correlation between the two markets helped this pair close at 1.3139. We enter the week with a key VantagePoint level of 1.3176. But, we need to keep an eye on recent patterns that have seen new swing highs followed by a 200-300 pip corrective move. The MACD is firmly above the zero line and our RSI is at 44.6. This gives a slightly bearish tone but doesn’t signify a breakout-impending scenario. So we could see bears win the battle while bulls win the year-end war.
Australian Dollar/U.S. Dollar (AUD/USD) is giving a sense of déjà vu as it once sees a lot of activity around the Brexit high range. We’ve seen no less than six tests of the range limit and have failed every time. We come into the week following a close of 0.7610 and a key VantagePoint level of 0.7598. The predicted differences are trying to signal a potential bull move. For that to happen, metals will need to have a good week. The biggest warning sign is the MACD and its inability to break off the zero line.
New Zealand Dollar/U.S. Dollar (NZD/USD) continues to exhibit aggressive bearish momentum as it approaches the low of the Brexit range. We did see signs of a potential leveling out scenario that has the potential to turn into a corrective bull movement. Our key VantagePoint level for the week is 0.7180 as the pair tries to return to that level. However, the MACD is well below the zero line and the RSI is sitting at 25.7. Both strong indicators that bearish momentum is likely to continue.
The Forex Weekly Outlook is a weekly video series. It is designed to help traders remain aware of the intermarket correlations of these global market relationships. You can become more profitable if you know how to get ahead of the trends and understand these relationships can potentially expand your portfolio.