EUR/USD and USD/CAD Weekly Charts Reveal Potential for More Dollar Weakness this Week
It is a strange thing when a currency stops rising on good news; and that appears to be what is happening to the US Dollar.
There are a number of fundamental explanations offered for the Dollar's underperformance, as noted here.
Now, reviewing the weekly charts at the beginning of the new week, it looks as if the Dollar may continue underperforming as two major Dollar pairs are signalling more technical downside for the greenback.
The most compelling weekly chart is that of USD/CAD which is indicating that this week will probably be a down week and that the USD/CAD is also entering a medium-term bearish phase.
The last two weeks showed small gains against a backdrop of steady declines, which is a sign that the pair has corrected but the trend remains down.
This set-up, which is known as a 'two steps back one step forward' (circled) shows an increased probability that the following week will close lower than it opened, therefore traders should keep in the back of their mind that the tide might favouring bears.
The chart is also showing the potential for longer-term losses too.
The pair may have formed an incomplete bearish measured move, also known as an abcd pattern, which indicates prices could move down to about the level of the 200-day MA at the 1.2000 mark eventual.
Measured moves are made up of three waves of market activity - the first wave down, a second shallower recovery wave and then a final wave down which is similar in length and breadth as the first wave.
USD/CAD appears to have formed wave’s one and two and is about to start three.
In abcd pattern talk wave one is labelled a-b, two is b-c and three is labelled c-d (see chart).
A-b fell sharply from its peak in January 2016 to the 1.24 low in May of the same year.
The pair then began to rise in a faltering recovery to the recent 1.3600 high (b-c) since then it has fallen back down to trade in the current 1.31s.
What looks likely to happen from here is that another steep decline of a similar length to the first (c-d) which will bring the exchange rate back down to about 1.2000 mark where the 200-day is situated.
The fact that the MACD momentum indicator has poked below the zero-line and the Parabolic Sar indicator – represented by the dots above and below the exchange rate, is above, indicating the trend is bearish, further enhances the bearish outlook.
Euro-Dollar Vulnerable
EUR/USD is not showing as compelling signs but it is indicating that this week may favour upside more than downside activity.
This is because of the ‘One step forward two steps back’ set-up which is showing the previous two weeks were bearish but that the dominant short-term trend is bullish.
(Contrast this to our week-ahead analysis here which suggests the opposite. When it comes to currency's taking in as many views as possible is always recommended).
In this situation – as in USD/CAD above – but from a bullish rather than bearish perspective, the odds favour this week’s close being above its open.
The dots of the Parabolic Sar are underneath the exchange rate supporting a bullish outlook.
MACD has crossed its signal line but remains below the zero line issuing a mildly bullish signal too.
