US Thanksgiving Holiday May Slow Down the Dollar’s Ascent
Eric Furstenberg • 5 min read
The US dollar is currently trading at 13-year highs. Donald Trump’s election as the new US president has caused a magnificent rise of the US currency’s value. This bull run could continue for an extended period of time, but a pause in this advance could very well happen in the week ahead. Here is a daily chart of the US Dollar index:
US Dollar Index, Daily Chart
Just as a reminder, this is an index of the US dollar’s performance against four major currencies namely the Australian dollar, the Japanese yen, the Euro, and the British pound.
Important US economic news this week
Existing home sales – Tuesday 15:00 GMT
Core durable goods orders – Wednesday 13:30 GMT
New home sales – Wednesday 15:00 GMT
Crude oil inventories – Wednesday 15:30 GMT
FOMC meeting minutes – Wednesday 19:00 GMT
The USD/JPY has pushed aggressively higher in the last 39 trading days, gaining more than a thousand pips, which translates into a gain of about 10.5 percent. We haven’t seen such an impressive rise in quite a while.
USD/JPY 4-Hour Chart
The probability of a US interest rate hike in December is currently standing at 100 percent. This has also contributed to the recent US dollar strength. The outlook for US economic growth looks great, especially with Trump’s promise to boost infrastructure spending and to reduce taxation. While all of this adds to the appeal of the Greenback, it doesn’t guarantee a further gain in its value, however. Nothing is guaranteed in the financial world. Market players tend to front-run fundamental economic catalysts, and you can be sure that much (if not most) of a December rate hike has been priced in by the market already. I’m not saying we should start selling the dollar this week. This would contradict sound trading practice. We don’t want to fight this powerful bull trend, whatsoever. However, this massive advance could face some exhaustion, especially in a week that is known for its shallow liquidity. The USD/JPY could consequently experience a pullback in the week(s) ahead which may offer better entry levels for long positions.
The AUD/USD has declined aggressively since the US presidential election. Let’s look a daily chart of this pair:
AUD/USD Daily Chart
Going into the election, the bias on this pair was bullish. Starting on the day after the election, the pair entered a downward spiral which is still playing out at the moment. The pair has lost about 430 pips since the 9th of November (the day following the election).
This impulsive decline of the past few days has taken out an important technical level: the 200-day moving average. You might have noticed on the chart above, that the pair first bounced off this moving average before breaking through it with much force. It is not uncommon to see the price react to this moving average in this way – the 200-day moving average is a much observed technical indicator in the investment world.
The technical setup of the AUD/USD has undergone a significant morphosis in the last couple of days. The bullish market players have been wiped off the arena, and the bears are now firmly in control.
There might be some decent profits to be made by selling the pair soon, although it might not be the perfect time to enter the market right now. The strong decline of the past few days might be nearing a correction – the pair is certainly oversold at the moment. I would like to see a retracement of at least 80 pips before going short again. Of course, this is not the only criteria; I would also need to see favorable candlestick formations and price reactions to certain resistance zones. For example, it would be good to see the pair trade up to the 20-exponential moving average on a 4-hour chart. Then the price action needs to be observed to see how it reacts to this dynamic resistance level. Perhaps some candle wicks rejecting off of it, for example. Here is an example of how the 20-EMA acted as a resistor to the price:
AUD/USD 4-Hour Chart
The GBP/USD closed firmly below the 20-day exponential moving average again on Friday. It’s difficult to say where this pair will go in the next week or two, but I reckon we could see some sideways movement. Directly after the Brexit vote, the pair traded in a broad 600 pip range that lasted for several weeks. Perhaps the same type of setup could come into play now. However, we shouldn’t forget that the long-term trend is bearish, and perhaps the recent selloff could lead to a resumption of this downtrend.
GBP/USD Daily Chart
On Friday the UK GDP (gross domestic product) numbers will be released at 09:30 GMT. This is important data which could cause a lot of volatility for British pound pairs.
On Friday, the EUR/USD continued to decline sharply and printed the tenth candle of ten consecutive bearish daily bars.
EUR/USD Daily Chart
This is what aggressive selling looks like. The price is currently at an extremely oversold level. Although the downtrend is very strong and well defined, it wouldn’t be wise to enter into new short positions right away. The potential for a correction is too large at this stage. I would like to see a decent retracement form before selling this pair again. On the chart above, you will notice that the price is currently far from the 20-day exponential moving average. You’ll also notice that the slow stochastics oscillator is in oversold territory with the K and D lines about to cross over. This supports the probability that a retracement may occur soon. From a cyclical point of view, the chance of seeing a pullback soon is good. You can look back on your daily chart and see if you can find an instance where the EUR/USD has declined for ten consecutive days. We will almost certainly see a bullish daily candle on this pair in the next three days, if not on Monday.
Important economic news out of Europe this week
German manufacturing PMI – Wednesday 08:30 GMT
German GDP – Thursday 07:00 GMT
German IFO Business climate index – Thursday 09:00 GMT
The Canadian dollar performed well on Friday and was the only major currency that gained against the strong US dollar on the day. The oil price advanced on Friday, which helped the Canadian dollar. This doesn’t change the technical setup on the USD/CAD, however. The outlook for this pair still remains firmly bullish, and it should be noted that the technical picture on crude oil doesn’t look very supportive. If the oil price falls further and breaches the 200-day moving average, it could help the USD/CAD bull-run tremendously. Here is a daily chart of the pair:
USD/CAD Daily Chart
As you can see, the price is comfortably above the 20-day exponential moving average. Although this week might be relatively quiet, I reckon the pair could break higher soon, especially if we see continued US dollar strength and a breakdown in the oil price.
On Tuesday, the Canadian Core retail sales numbers will be released at 13:30. This is an important release which you need to keep an eye on if you’re trading Canadian dollar pairs.
The USD/CHF has broken out of its range convincingly. The bullish momentum is still strong but it should meet some exhaustion soon. Just like the move in the EUR/USD is extremely oversold, this move in the USD/CHF is far extended and overbought.
USD/CHF Daily Chart
As you can see at the bottom of this chart, the slow stochastics indicator is in overbought territory. The price is also far above the 20-EMA. This is not the perfect time to initiate new long positions on this pair. It would probably be better to wait for a retracement to either the 20-EMA or to the top of the range in which the pair traded a while ago.
Holidays this week
Thursday is Thanksgiving day in the United States.
Wednesday is Labour Thanksgiving day in Japan.
Have a profitable week!