The US dollar hit by the London patch
Will the US dollar continue to decline or was it just a one-time event as forex traders positioned for a sell-off on Friday?
The US Dollar Index (DXY) was hit before the London patch. While many large trading companies and hedge funds have closed during the year, there is still some trading. There are also pension funds that must mark their books by the end of the year.
With the lack of liquidity in the markets, big funds can move prices! The main reason they sell today, two days before the end of the month and year, is that many of these funds mark their books as of the settlement date.
In this case, Wednesday, December 29, is the last trading day because these transactions are settled in T + 2, starting on Friday, December 31. The selling of the US dollar both EUR / USD and GBP / USD rallied! What’s next for these pairs?
Analyze EUR / USD
EUR / USD has turned down in a orderly channel from 1.2215 in May 2021, but stopped near 1.1186 on November 24 when the pair recorded a false break below the trend line. Since then, the EUR / USD has hovered around the 61.8% Fib retracement level, from the lows of March 2020 to the highs of January 6 near 1.1292.
On the 4-hour chart, after breaking a short-term consolidation channel, the pair EUR / USD It stopped just below the 50-day moving average near 1.1391 and turned back. The next resistance above the 50-day moving average (not shown) is the channel’s upper descending trend line and horizontal resistance near 1.1490. EUR / USD is stalling near the upper triangle trend line support near 1.1325. If the price breaks below the trend line again, support is at the lower trend line near 1.1240 and then at the previous lows at 1.1182.
EUR / USD chart 4 hours
Source: Tradingview, Stone X
Analyze GBP / USD
On the 4-hour chart, GBP / USD fell in a downward wedge formation from 1.3600 on Nov 9 (red line). The pair broke above the wedge a month later near 1.3225 and moved to horizontal resistance and then retraced to retest the upper trend line of the wedge. From there, GBP / USD started to rise on December 20 and has not looked back. The pair has risen from 1.3183 to current levels close to 1.3499! 1.3500 is the first obvious resistance level. Earlier in the week, the GBP / USD pair formed a flag. The flag’s target is approaching 1.3570. Price must break the horizontal resistance at 1.3517 first if it wants this to happen. Resistance above the target is at highs in early November and at the wedge top near 1.3603. Support returned to Wednesday’s lows near 1.3408 and then to horizontal support near 1.3379. Below, support is at the top, the wedge downtrend line near 1.3290.
GBP / USD 4 hour chart
Source: Tradingview, Stone X
Both EUR / USD and GBP / USD have benefited from the sale of the US dollar on the London patch. The question, however, remains at the end of the week, month, and year: will the US dollar continue to decline or was it just a one-time event, as forex traders positioned for liquidation on Friday? Either way, watch the levels for a possible breakout or reversal!
By Joe Perry, Forex.com » Official site
Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or solicitation to buy or sell currency or CFD contracts. Although the information contained in this document has been taken from sources considered reliable, the author does not guarantee its accuracy or completeness, and does not assume responsibility for any direct, indirect or consequential damages that may arise from the fact that someone trusts such information.
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