Chart of the Day DXY
DXY Potential Reversal Zone - Probable Price Path
The S&P 500 has closed at a fresh record high of 3389.78, adding 51.5% (more than a thousand points) since it sunk to its pandemic-low of 2237.40. This has come at a time when the US is still grappling with the coronavirus and the next fiscal stimulus still very much in the air with Congress, with liquidity provided by the Fed since March proving more than ample in fuelling the recovery of the US equity market. The dollar continued its decline, with the dollar index falling to its lowest in almost 27 months and the euro hitting a two year high against the greenback. Gold advanced 1% and Treasury yields declined 2bp – cross-asset moves that begin to seem all too familiar in the current risk-on setup. Meanwhile, US-China tensions continue with Trump remarking he has no wish to talk to China right now, but that has been largely overlooked.
RBS: FX Options update: Felt like another summer where we wouldn’t expect much to happen, but a lot happens. As we said on Monday, what vols are going to this week would strongly depend if USD would weaken or would do nothing. Vols have been paid up quite a bit through this week, 1m trading 6.35 on Monday morning, which is now 7. EURUSD is the place where the market feels a bigger tickle to be honest, that is not often the case, normally what happens is that EURUSD vols go up and then there is supply within the next couple of days and vols come back down. The vol curve started going up quite sharply last week. Yesterday was sharply higher again as the high was broken in EURUSD. Feels like people are knocking out of options or are getting paid for them, or both. EURUSD curve looks very high now compared to what it is realizing. Feels like the market is pricing in a trading of 1.20, 1.21 in short order actually. We think through there, more options will get knocked out and the market is going to feel a tickle. Feels like the options market is telling us that EURUSD is going to move from here
From a technical and trading perspective, the DXY (Dollar Index) looks poised to make a third test of the descending channel trendline support currently coming in at 91.70 (translating approximately to 1.2030/40 on the EURUSD. For now, expect the next target for the EURUSD at 1.2000, the GBPUSD at 1.3300 and the USDJPY at 105.00) this test could be the catalyst to complete the interim cycle in a five wave sequence, which represents the potential of completing the third wave of the primary cycle from the March highs. Look for bullish reversal patterns from this level to play counter trend longs, looking for a move to test descending trend channel resistance and March lows towards 95.00. From this 95.00 area there will likely be sufficient supply for the primary cycle 5th wave test of the psychological 90.00 handle.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!