Currencies Up Against The USD, But Not Yet Overbought

Recent US dollar weakness has principally been responsible for the strength of the euro dollar, Australian and New Zealand dollar. The decline really started after the market started pricing in the likelihood that the Fed will not raise rates as aggressively as previously thought whilst simultaneously the AUD has appreciated due to the increase in iron ore prices. Many analysts are saying that this paradigm shift will not lead to long lasting greenback weakness and it will soon find its footing with the return of inflation to the US economy. Having said that, the momentum is still clearly against itand for the moment, looking for shorting opportunity is premature.

Looking at the daily chart below, oscillator indicators signal strong Australian dollar upwards momentum without any indication that it’s reaching a summit. The indicators I’ve used are the MACD, slow stochastic and CCI indicators. The dip below long-term support was a false break down and this may have caught a lot of traders on the wrong side of the trade. Cutting that loss would be a prudent decision.

AUD/USD Daily Chart

The situation is the same for the New Zealand dollar. A potential shorting opportunity may exist if the CCI and the slow stochastic fall back into the channel, but clearly, we’re quite far away from this. Looking at the MACD, we have not even reached a plateau and we’re still many days away from a signal line crossover. The former support level, subsequently acting as resistance, is againa possible support level. The aggressive bounce higher is considerably bullish.

NZD/USD Daily Chart

The euro has now reached a firm area of selling pressure, however, looking at the bullish indicators, it looks like it will be completely left by the wayside. Nevertheless, this current level may act as the first test before a move higher.

EUR/USD Daily Chart

US dollar weakness may continue into the New Year, but I think it will find its footing again in the first quarter of the new year. My call for 2018 is that as Trump’s fiscal policies ripple through the economy, the greenback will rise in demand, pushing the euro back below 1.10; a bold call in the context of extremely positive euro zone economic data. The ECB is still far away from raising rates and the Catalan independence movement along with Brexit will continue to shake faith in the currency.

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