What does the dollar’s correction mean to the longer-term fx trends?

Directional Bias, one of my seven keys to trading, has dictated my longer-term view of the EUR/USD, GBP/USD, USD/JPY, and USD/CHF. Let’s discuss each briefly now:

EUR/USD: The daily chart continues to pullback as the short uptrend is being challenged by the dollar’s bullish resiliency. The fact that the U.S. Dollar has neither broken higher through the top of the 34EMA Wave nor transitioned the Wave into a sideways market trend confirms that there is still a downtrend and that my longer-term analyses stay bullish. The U.S. Dollar’s resistance at 79.00 will play a significant role in my continued expectation for the EUR/USD to bounce. I must avoid being too rigid however because a failure to notice a transition to a sideways market trend on the daily EUR/USD could put me on the wrong side of intraday trends as well as keep me bullish too long. For now, 1.3420 to 1.3400 will be near-term support as well as where the Point of Validity stands for the daily chart’s uptrend. Intraday set ups can and should be played in the direction of the downtrend on the five, 15, and 30-minute charts. These time frames are nimble enough so that if there is a significant reversal of the dollar’s bullishness, these time frames will the sentiment and momentum shift quickly.

GBP/USD: Despite the dollar’s strength, the cable has held nicely to not only the “twelve to two o’clock” 34EMA Wave angle but also the support at the Wave itself. The uptrend on the daily confirms the strong bullish Directional Bias and continues to press the case for buying into pullbacks to the Wave on the daily. The area between 1.6060 and 1.6080 holds the key to what happens next though since this 20 pip area acted as resistance on the recent, intraday rally. The clarity of the market trends (external psychology) remains mixed and unreliable especially since the range has been narrowing over the course of the daily chart pullback. Foe me, February – thus far – has seen a price movement range of 1.6278 to 1.5958 leaving only a 320 range. The bullish Directional Bias also rules out shorts on the 60 and 240-minute chart therefore short sells would be limited to the five-minute “Between the Greens”, 15 and 30-minute swings.

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USD/CHF: The swissy (as well as the USD/JPY which I will discuss next) remains in distribution market trends which are created by wide, sideways ranges that usually have a high degree of volatility. Once the floor(s) and ceiling(s) of the range are identified, there carries with it an expectation of exhaustion at these levels when accompanied by either an overbought reading at the ceiling or oversold reading at the floor. The swissy is trading within the area of resistance where exhaustion should limit any further rally, and of course the dollar will be a big part of the selling pressure if it loses its bullish momentum and allows the franc to begin to gain on it once again. I would look for the bears to make their presence known between 0.9764 and 0.9784. While the 240-minute chart is in a strong mark up trend with a swing buy zone between 0.9652 and 0.9670, this is too close to the ceiling in my opinion. If the U.S. Dollar continues to pullback (remember my Directional Bias for the dollar is still bearish) then the 60-minute Wave Reversal entry through the 34 period EMA low and the 0.9700 level will be the short sell that is in-play.

USD/JPY: Similar to the USD/CHF, the USD/JPY is in a sideways range with prices trading near the ceiling. The distribution trend has resistance waiting between 83.46 and 83.68. This would be the range where I would expect selling pressure to build on the daily chart and if accompanied by an overbought (over 80) reading of a 21/1/3/ Stochastic, a distribution fade would trigger in the form of a short sell.

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Realize that the intraday trend on the U.S. Dollar Index is still UP. This means that short-term intraday plays would be best taken with the dollar’s bullishness in my opinion. It’s actually only the longer-term daily time frames that are still reliant on dollar’s bearishness. The dollar’s near-term support is waiting between 78.75 and 78.64 and until price get back below 78.40 there will likely be bulls willing to buy into what many traders and investors are expecting to be a dollar reversal higher.

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