NFP Preview: A Look at USDX

June 3, 2016

NFP Preview: A Look at USDX:
As we discussed in today’s Daily Market Update, Forex markets are sitting at key support/resistance levels heading into tonight’s NFP number.

I wanted to delve a little deeper into what I’m looking at on the US Dollar Index heading into the release, and go through which direction I see the greatest risk of market disappointment following the number.

USDX Daily:
160603_usdx_daily2
Click on chart to see a larger view.

Having trended downward since forming its March 2015 high, the USDX chart has come back to test the upper resistance level of what can be viewed as a wedge or what I like to say is just a wonky looking channel.

I look at it as a channel purely to simplify things because the top trend line is what’s in play at the moment, and therefore the only part of the pattern that really matters.

USDX Hourly:
160603_usdx_HOURLY2
Click on chart to see a larger view.

Having said we’re in a higher time frame bearish trend on the daily chart, a look at the counter-trend trend line on the daily and the price action around it becomes key.

As you can see here, price tested the higher time frame resistance level before breaking-out of the hourly trend line acting as support.

We then got an absolutely textbook re-test of the break-out level, but the re-test didn’t bring the sell side momentum it could have and price has just ranged sideways since.


“That’s price hanging on for dear life. Just look at him!”

 

Where is the Greater Risk?:
With the Fed constantly nailing into the market that they are all set to hike in the hope of minimising volatility of an unexpected outcome, the greatest risk tonight for me is fundamentally USD bearish.

We’ve spoken before about considering just how much of any impending Fed hike is priced in, and even the consideration that is in fact fully (or even overly!) priced in.

If that were the case, an NFP headline beat really wouldn’t have the impact that a headline miss would have to the downside on USD.

With the USDX sitting at the technical resistance we have highlighted above, short USD across the Forex majors might be the safer side to manage your risk around if you are taking positions in or around tonight’s release.

Make sure you follow the USDX on MT4 with Vantage FX!

Dane Williams – @VantageFX

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