Get the Forex Forecast using fundamentals, sentiment, and technical positions analyses for major pairs for the week of January 17, 2021 here.
U.S. Dollar Index
The weekly price chart below shows the U.S. Dollar Index printed a bearish candlestick last week, after previously rejecting the resistance level identified at 12257 four weeks ago. Although it is clear there is a short-term bearish trend in the US dollar, the weekly candlestick has a long lower wick rejecting the support level at 12117, although it convincingly broke below the higher former support level at 12150. While this decline is not enough to invalidate the long-term trend (the price is still well above its levels from 3 and 6 months ago), we may now have experienced a major bearish reversal.
Overall, it seems clear we have a mixed picture in the USD, long-term bullish, medium-term bearish, and short term indecisive at the support of 12117. The best I can say is that a sustained breakdown below 12117 during the coming week could be a decisively bearish sign for the dollar over the short to medium terms.
WTI Crude Oil
WTI Crude Oil made its highest weekly close in 7 years last week, printing a very strongly bullish wide-range candlestick which closed right on its high. These are bullish signs, as is the fact that a few other commodities are reaching long-term highs in a high dollar inflation environment. However, we did see higher prices a few weeks ago, so there may be a bearish failure below $85.39 which has not yet been reached. I think WTI Crude Oil can be an interesting buy once if we see a daily (New York) close above $85.39.
USD/CAD
I had expected the level at 1.2611 might function as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows how the price rejected this level with a pin bar soon after the start of last Monday’s London session, often a good time to enter a new trade in a major Forex currency pair involving the US Dollar, marked by the up arrow in the price chart below. This trade was nicely profitable, achieving a maximum positive reward to risk ratio of approximately 4 to 1 based upon the size of the entry candlestick.
USD/JPY
The US dollar plummeted against the Japanese yen but did recover slightly during the Friday session. At this point, it looks as if there is a lot of selling pressure, so I think if we do rally at this point, a significant amount of resistance may cause some issues. At the first signs of exhaustion, I anticipate that there will be a lot of traders out there willing to short this market. That being said, the ¥112.50 level underneath should be a significant support level. To the upside, keep an eye on ¥115, because it is so important.
EUR/USD
The euro had a wild week, as it initially fell towards the 1.1250 level before turning right back around. We got an explosive move to the upside as we sliced through the 1.14 handle, and then went racing all the way to the 1.15 level above. The 1.15 level is a psychologically important area, and we saw the US dollar strengthen late in the week. Because of this, the euro took it on the chin. At this point, the question is whether or not the area just underneath the 1.14 level will hold as support. If it does, then it might be a buying opportunity, but if we break down below the 1.1366 level, it is likely that we would break down.
AUD/USD
The Australian dollar rallied most of the week, reaching towards the 0.73 level, but we ended up breaking down significantly to form a bit of a shooting star for the week. That is a negative sign, and it looks like we are going to continue the overall negativity that we have seen in this market. Because of this, it would not surprise me to see a “sell the rallies” type of situation, or perhaps just a break down towards the 0.70 level.
AUD/NZD
The Australian dollar rallied against the New Zealand dollar again during the course of last week, but as we have seen over the last month, every time it does that, there are sellers to push the market back down. At this point, if we break down below the 1.0550 level, I anticipate that we will have a continuation of the longer-term downward pressure. That being said, if we can break above the 200 week EMA, that would confirm the “W pattern” that we had just formed and would be extraordinarily bullish.
Bottom Line
I see the best opportunities in the financial markets this week as likely to be long of WTI Crude Oil following a daily (New York) close above $85.39 or long of BTC/USD following a daily (New York) close above $45,668.
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