Good morning Forex Kings,
There is one chart screaming out to me that I am watching closely. This is the USD Index.
Over the past couple of weeks the USD index broke through a key channel it had been trading between for the past 2 years. Furthermore, it has now created a bearish signal, the death cross on the daily time frame. This is when a lower time frame moving average (50 day MA) crosses through a longer term moving average (200 day MA) to the downside.
Lets take a look at the charts
DXY (USD INDEX)
As you can see I have highlighted the last two death cross signals. The USD Index continued its decline for some time following the signal. Over the last week we have just had the cross over from the 50/200 day MAs. This suggests, longer term we may continue to see a weaker USD.
Do the fundamentals support a weaker USD?
Yes, the FED have signalled interest rates are on hold, however they have also suggested lower interest rates are here for the foreseeable future meaning we could see an additional rate cut in 2020.
US ISM Manufacturing PMI came in slightly above recession territory, the FED have cut the inflation and GDP forecast for 2020.
Any positive news regarding the trade war also devalues the USD. The phase 1 trade agreement is suppose to be signed next Monday (13th Jan) therefore if the meeting goes to plan we could see further devaluation of the USD.
This provides us an opportunity to look at other currency pairs to buy against the USD.
EURUSD Daily Charts
The EURUSD has also broken out of a key trend followed by a retest. There has also been a series of higher highs and higher lows which signals a bullish trend.
EURUSD 4 Hour Charts
There are a number of resistance levels with the key ones being set at 1.1280, 1.1320 and 1.390. These can provide targets with our buy positions.
Plan here is to buy on the pull back towards 1.1160.
Trade Set Up: BUY LIMIT – Entry Price 1.1160, stop loss set at 1.1060 and take profit at 1.1300
Stop loss: 100 PIPS
Take Profit: 140 PIPS
We may edit the position depending on if it breaks clean above resistance before coming back down to activate our trade.