Wow, what a week for USD! First, on Wednesday, traders were surprised by the ‘more than expected’ dovish approach from the FOMC, which provoked them to short the US dollar. Then, on Thursday and Friday, this pessimism towards the USD vanished almost entirely. Well, it depends on the pair, but on AUDUSD, for example, we are even lower than before the FOMC meeting.
On Wednesday, after the FOMC, everything looked great for buyers. The pair defended the orange support at around 0.707 and went higher. In addition to this, we managed to break two important resistances. The first of these was the mid-term downwards trend line (black) and the second one was the upper line of the flag formation (upper blue). In theory, that was a very strong buy signal. Well, sometimes theory doesn’t work in practice. The pair didn’t manage to hold on to Wednesday’s gains and dropped like a rock. Today, we are testing the 0.707 support again, which is holding up so far. We have a bounce, but the size and momentum of the reversal is so far questionable. I would wait a little bit more before opening a long position. The risk of a bearish breakout is still quite high.
As long as we stay above the orange area, we do not have a legitimate sell signal. This will be available if the pair closes the day below that support. After last week’s reversal, the chances of that are quite high.