For most of this year, we have seen a significant trends in the U.S. dollar that support the bullish direction. There are a few different reasons for why this has occurred and most of the arguments center around the fact that the U.S. is one of the only countries that is actively interested in raising interest rates in the near future. Recent reports from CMC Markets show that many traders are still expecting interest rate increases from the Federal Reserve before the end of the year.
For those that are looking to buy into U.S. stocks or ETFs that are based on the U.S. dollar, these are trends that must be considered before any new positions are placed. The best way of assessing these trends is to look at the ways the U.S. dollar is trading relative to its most commonly traded counterparts. The euro and the yen are the two major players in this respect, so here we will look at the EUR/USD and the USD/JPY.
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EUR/USD - Euro vs. U.S. Dollar
Critical Resistance: 1.14
Critical Support: 1.1050
Trading Stance: Bearish
EUR/USD Forex Strategy: The pair is still a sell rallies, and this will continue until we can convincingly break above resistance at 1.14. Support below now rests at 1.1050.
Downside activity in the EUR/USD has been propelled in large part by the steady increases we have seen in durable goods like automobiles and large appliances, according to recent reports from Alpari Forex. Rising auto sales have been one of the biggest components in the better durable goods numbers we have seen recently in the financial markets. These events have brought the dollar higher, and the EUR/USD lower. From a chart perspective, we have started to see some short-term rallies in the EUR/USD, but when we look at things from a longer term perspective it looks clear that these trends are set to continue. Watch for a break of 1.10 to propel the euro higher, but a failure here would be extremely positive for U.S. dollar assets.
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USD/JPY - U.S. Dollar vs. Japanese Yen
Critical Resistance: 122
Critical Support: 116
Trading Stance: Bullish
USD/JPY Forex Strategy: Sideways momentum still prevails, but most of the activity is still bullish so long positions continue to make the most sense. Support on the downside is seen at 116, while resistance above can not be found at 122.
The USD/JPY is still moving in a sideways directional range, and support and resistance can now be found at 116 and 122. Daily MACD readings are still in positive territory, although not by much. So it still makes sense to trade from the long side as long as these reading hold steady. An upside break of 122 puts the next bull target at 125.
