The following guest post is courtesy of ATFX Global Chief Market Strategist Alejandro Zambrano.
The US Dollar is coming back strongly, and in the last few days, the greenback has managed to breakthrough several critical levels against Gold, New Zealand Dollar, Swiss Franc, and British Pound. Overall, the last few days price action suggests to me that the Dollar might be able to continue to add its gains, and could even get the EURUSD pair going.
EURUSD pair
Last week I published an article here in Leaprate, and I said that gold prices had carved out a significant head and shoulders pattern and that the pattern was indicating that gold prices might trade as low as $1218, on a break to the March 10 low at $1280.5. Today, at the time of writing gold prices were trading at $1269.5 and had just slid to a new multi-month low. GBPUSD had also just traded below its March 10 low of 1.2950, and on the price closing below this level it might open up the door for further declines, as it would complete an ascending triangle pattern with an objective of 1.2646.
The slide in GBPUSD and Gold prices were not unique, and NZDUSD also stands to trade much lower following a break of a multi-month rectangle of 0.6713 – 0.6940. The break to the 0.6713 low suggests that the price might be able to reach the 0.6489 level, as long as the price trades below the breakout candle high of 0.6730.
The benefit of using correlations is high as it helps to stay away from weak trends, e.g., if only XAUUSD was trading lower, it would have been easy to dismiss the new trend in the Dollar, but with the dollar breaching major levels across various pairs, it strengthened the case in the Dollar. And a trader could have shorted NZDUSD with higher conviction after seeing that XAUUSD was already bearish.
Today, GBPUSD traded lower and could try to catch up with gold and NZDUSD in the next few days. The bullish pressure on the Dollar could even mount enough to cause the EURUSD to start trending. A sure sign of that happening is if the price trades below the 2019 low at 1.1175. The first time the price bounced from the 1.1175 level was on March 7, followed by a bounce on April 2. If I am right, there could be a good amount of stop-loss orders just below the 2019-low placed by traders that bought on March 7 and April 2, and a breach to this level could send the EURUSD much lower and start a new trend. If the price indeed manages to close below the 2019 low, the price might be able to reach the 1.09 level. The target is derived by assuming that the decline from the March 20 high will repeat on a break to 2019 low, and a decline to 1.09 is also similar in magnitude to what we are projecting in GBPUSD and NZDUSD.
Time will tell what will happen in the next few days, but the way the markets are progressing it is looking more likely that the Dollar could be the big winner of the Q2 2019.
Risk Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.71% of retail investor accounts lose money when trading CFDs / Spread betting with ATFX. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
This market update was provided with an educational purpose, and is the personal opinion of Alejandro Zambrano, and not to viewed as trading advice by ATFX or Red Castle Ideas LTD.