Markets Analysis. USD, EURO, GBP

David Austin 

Chief FX Strategist, Citizen FX

The US Dollar was the strongest major currency last week, while the Japanese Yen was the weakest. However directional movement was very low. Volatility decreased last week, with only 7% of the most important Forex currency pairs and crosses changing in value by more than 1%. Next week’s volatility is likely to be higher.

US Dollar Index

Last week, the US Dollar Index printed a hammer candlestick which closed higher but with a large upper week. I see this as, surprisingly to some, a bearish candlestick. The price remains close to the multi-year low made a few weeks ago. There is a clear long-term bearish trend.

The bullish case is represented by the fact that the price has not yet broken the multi-year low, and in this area at the low we have a horizontal level which has already proved to be strong support, at 97.67.

I think it makes sense to be trading in line with the long-term trend which will be short of the greenback. If there is short-term bearish momentum when the price opens this week, you should be more confident in going short here.

EUR/USD

The EUR/USD currency pair made a new multi-year high in April above the round number at $1.1500, but since then it made a bearish retracement followed by another upwards movement. However, that sounds much more bearish than the price action really looks. It seems the bullish momentum is running out of steam.

Despite that reason to be cautious for bulls, the price is still not far from a multi-year high, so a bullish push could dramatically change the technical scenario here.

Another factor that might give bulls a tailwind is the long-term bearish trend in the greenback, and the impending tariff deadline in July, as well as president Trump’s announcement a few hours ago that tariffs on steel and aluminium would be doubled from 25% to 50% effective this Wednesday, might also help to push the price higher.

I will enter a new long trade in this currency pair if we get a daily (New York) close above $1.1513.

GBP/USD

The GBP/USD currency pair reached a new multi-year high price at the start of last week, well above $1.3500. However, it then fell over the remainder of the week, although trend traders are likely to mostly still be long here.

I see the long-term strength in the British Pound (boosted by higher than expected inflation producing an outlook of relatively high interest rates) coupled with the long-term bearish trend in the US Dollar as likely to produce more long-term bullish breakouts here, which might be successfully traded with a relatively tight trailing stop – about 1 ATR daily of a long-term value tends to work best with this currency pair.

I will enter a new long trade if we get a daily (New York) close above $1.3558.