DXY Friday Rising-Wedge Breaking on KeyEventRisk | DXY Cross FA

7 Oca 2022

We have opened the new trading year with some unusual FX volatility that is likely a byproduct of the unusual liquidity and seasonality conditions. Some countries (including many in Asia) observed the New Year's Day holiday on a Monday, so not all of the world's major financial market centers were open for business on January 3rd. That partial drain of speculative participation likely compounded the typical turbulence that comes at the very beginning of the year. Year-end conditions typically see large changes in portfolios for rebalancing, accounting, and strategy adjustment purposes. Naturally, the dollar tends to play a big role in this capital movement. And as the current reverses to start the New Year, we can see equally abrupt activity. Across the dollar-based majors, we could see the bullish charge behind the greenback – though there was notably less traction with emerging market currency crosses compared to the developed world majors. This unreliable charge has made some interesting technical adjustments for the likes of the AUDUSD, GBPUSD, and USDCAD, but I am most interested in the EURUSD. This pair was on the verge of a bullish breakout at the end of last week/month/year when it crossed above the 50-day simple moving average for the first time in 76 trading days. That said, I was not at all convinced of the move given it was happening in the Bermuda triangle of liquidity. The swift reversal on Monday shows what we are really dealing with. This large 0.8 percent drop doesn’t offer any more credibility for the intent of the trend than the move on December 31st, but this one represents a check back into the range.

https://www.tradingview.com/chart/DXY/iziMpPnu-DXY-Downside-Break-to-Start-NY-1-5/
We don’t yet have the market backdrop to determine whether the next committed trend from this benchmark cross is going to be bullish or bearish, and range trading is a viable strategy so long as the boundaries hold. The range I will be watching is 1.1400 to the upside and 1.1200 as support, and we are presently dead in the center of that span. For potential, I would be more interested in playing the range off resistance given the prevailing trend and given that there is an ascending triangle with a floor near 1.1265 – a break of which could override even the strong Fibonacci confluence at 1.1200. While there are strong range conditions to consider, the eventual (and inevitable given enough time) break from this congestion will interest me far more. The 30-day ATR (average true range as a volatility measure) and same-duration historical range percentage suggest breakout pressure is high. If we stick with the current EURUSD bear trend, a break of 1.1200 will most likely be met with serious skepticism around 1.1000, where trend-line support dating back to 2000 lands – not to mention it is a round number.It may not ultimately stop the market, but it will certainly slow its progress. Alternatively, breaking 1.1400 is a move back into a range established over years. The absolute upside is 1.2200, but I prefer to play to milestones along the way at 1.1500 and 1.1700, among other levels. I see this as a hybrid range and breakout strategy benefactor rather than outright in either, and certainly not trend trading.

There has been a lot of unusual volatility in the foreign exchange market at the start of the new trading year. This is likely because of the unusual liquidity and seasonality conditions. The New Year's Day holiday fell on a Monday in some countries, including many in Asia. This meant that not all of the world's major financial markets were open for business on January 3. That small drop in speculative participation may have made the start of the year even more turbulent. At the end of the year, a lot of people make big changes to their portfolios for rebalancing, accounting, and strategy changes. Naturally, the dollar tends to play a big role in this kind of money movement. As the current changes to start the New Year, we can also see a lot of sudden activity. People were cheering for the dollar all over the world, but there was a lot less movement in emerging market currency crosses than there was for the dollar. Some interesting technical changes have happened because of this unreliable charge. I'm most interested in the EURUSD, but the AUD, GBP, and USDCAD have also had some changes made. At the end of last week, month, or year, this pair was on the verge of a bullish breakout. It crossed above the 50-day simple moving average for the first time in 76 trading days at that time. However, I was not at all sure about the move because it was taking place in the Bermuda Triangle of money. On Monday, we saw how quickly things changed. In other words, this big 0.8 percent drop doesn't give any more weight to the trend's direction than the move on December 31st.

• For now, we don't know if this benchmark cross is going to go up or down, and range trading is a good strategy as long as it doesn't fall outside of the boundaries set by the market. There is a range I'll be looking at: 1.1400 to the highs and 1.1200 to the lows.
  

Right now, we're right in the middle of that range. When it comes to the long-term, I would be more interested in a play on the range off of resistance, given the current trend and because there is an ascending triangle with a floor near 1.1265. A break of this triangle could even override the strong Fibonacci confluence that is at 1.1200. While there are strong range conditions to think about, the break from this congestion will be far more interesting to me. Breakout pressure is high based on the 30-day ATR (average true range as a volatility measure) and the percentage of breakouts that have happened in the same amount of time. It's likely that if we keep with the current trend of the EURUSD going down, we'll be skeptical of a break of 1.1220, where a 2000-year-old support line comes in. It's also a round number, which makes it even more suspicious. It may not be able to stop the market, but it will certainly slow it down. This is a good thing. Breaking 1.1400 is also a move back into a range that has been in place for years. It's possible to make money at 1.2200, but I prefer to play at milestones along the way, like 1.1500 and 1.1700, to make money.