On the daily chart below, we can see that the price is finding support in the 1.07 area and the trendline. The sellers will need to break below that zone to start targeting 1.05. The moving averages are pointing to a continuation in the downtrend that started with the surprisingly strong NFP report.
The market is currently repricing interest rates expectations with increasing chances of another 25 bps hike in June and almost no rate cuts expected for this year. Right now, good news should be bad news as the market may be worried that what the Fed has done until now may not be enough to return to their 2% target.
Yesterday’s retail sales report showed a big surprise to the upside and that should be further confirmation that the Fed is not done and the US Dollar should come back.
On the 4 hour chart below, we can see that after bouncing from the support at 1.07, the price pulled back to the 1.08 level where we also had a previous swing level resistance and the 38.2% Fibonacci retracement level.
It’s clear that we are in another consolidation here between 1.07 and 1.08. Given the fundamentals though we should see the price breaking down out of the range and sell off to the next support at 1.05.
On the 1 hour chart below, we can see more closely the current ranging price action. One can also point out two different chart patterns that without the fundamental context point to two different directions. We can see a possible double top at 1.08 formed within a downtrend which would make it a continuation pattern in this case, and an inverted head and shoulders at 1.07 which would make it a reversal pattern after the downtrend.
The reality though is that it’s just a range and we can often see spikes out of the ranges. The best strategy would be to wait for a breakout of the range before taking positions or “playing the range” buying at support and selling at resistance with defined risk.
