Dollar strength continues in September
As we discussed in our previous Forex market analysis, during the summer months the uptrend in the US dollar continued after a 2.822% rise in the first half of the year. September was no different – as, not only did this trend continue - but the dollar index experienced a strong rally of 1.73%, taking it above 94.00 USD and continuing the momentum after bouncing upwards from its support around 90.00 dollars.
Attention in the foreign exchange market remains focused on central bank actions and announcements, as the Federal Reserve and the European Central Bank begin to taper their current stimulus programmes in order to address rising inflation – which is being exacerbated by the energy crisis.
After a positive 2020, 2021 is, thus far, leaving a bitter taste in the EURUSD. During the first nine months of the year, the single currency has lost 5.17% against the greenback due to the strong rebound of the dollar.
For the moment, the trend is still negative and shows no signs of recovery in the short term - since, if, as expected - the Federal Reserve finally starts tapering in November, the dollar could get a new boost that could increase the declines.
During September, the EURUSD has fallen almost 2%, after confirming the formation of a triple top in green. This decline has led the price to seek and temporarily break the important support represented by the lower red band. If the price is not able to regain this important support level, the downward movement could continue to the next support levels.
This bearish movement has also provoked the so called “death cross” - as it has made a triple bearish cross of its short, medium and long term moving averages (white, orange and red), thus confirming the change from a bullish to bearish trend, these being maintained for the moment by a bearish slope.
Despite the accumulated oversold conditions that we can see in the stochastic indicator, it seems that the price could head towards its next support level if it is unable to recover the important support represented by the red band. In this case, the target could be a level near 1.14920.
Evolution of the last five years:
- 2020 = +8,93%
- 2019 = -2.21%
- 2018 = -4.47%
- 2017 = +14.09%
- 2016 = -3.21%
In the case of the GBPUSD - we can see that, although during the first half of the year the price rose by 1.12%, since it marked annual highs at the end of last May - it is experiencing a strong setback that has led it to fall from an area above 1.42 dollars to face its 200-period moving average in the vicinity of 1.3410 dollars.
As we can see in the weekly chart, after twice facing its important resistance level represented by the green band that joins the highs of 2018 and this year 2021, the price started a sideways movement with a bearish bias that has caused a pullback to its important support/resistance level represented in orange that led it to face its weekly 200-session moving average.
We must be very attentive to this important level, as if the price finally confirms a downward breakout and loses its 200-session average in red, we could find ourselves with a sharp downward movement that could be reinforced by a bearish crossover of its short and medium-term moving averages, thus opening the door to a possible change of trend from bullish to bearish, taking the price to a level close to $1.30 per pound.
Evolution of the last five years:
- 2020 = +3.10%
- 2019 = +3.95%
- 2018 = -5.54%
- 2017 = +9.43%
- 2016 = -16.26%
Finally, if we look at the USDJPY, we can see how the US dollar is currently winning against the Japanese Yen. The yen has been one of the big losers from the rise of the dollar; during the first nine months of the year, the Japanese yen has lost 7.78%, marking highs in September at 112.08 yen per dollar.
After a rather sideways summer in the price action between its resistance level represented by the green band and its 18-week moving average in white, possibly due to the accumulated overbought and the negative divergence that we could find in the past in its stochastic indicator, during September, the USDJPY was able to overcome its important resistance level represented by the lower green band.
We will have to be very attentive to the evolution of the price in the coming weeks, because if the price manages to sustain this breakout, we could see a bullish rally in search of the upper band of the sideways channel in green. On the other hand, if the price fails to sustain this rise, we could see a pullback to its 18-week moving average.
Evolution of the last five years:
- 2020 = -4.95%
- 2019 = -0.88%
- 2018 = -2.76%
- 2017 = -3.59%
- 2016 = -2.85%
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