Technicals Show Room For More USD Weakness After The US Government Shutdown

By: Gregor Horvat | Tue, Oct 1, 2013
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USD is sharply down across the board after the US government shutdown. Some would think that US stocks futures will turn lower, but we in fact can see higher prices since the news came out. However, we may see a risk aversion (lower stocks) if government will be shutdown for too long, lets say around 3 weeks. In the past the longest close was 21 days, back in 1995 (source Wikipedia). The longer the shutdown will last, more nervous investors will become.

From a technical point of view we see room for more USD weakness as long as market trades beneath 80.75. Meanwhile of course we expect higher majors, such as EUR, GBP, CHF and even AUD which is also bullish and supported fundamentally after RBA kept rates unchanged at 2.5%.

USD Index daily

US Dollar Index Daily Chart

On the AUDUSD chart we can see that pair found a support around 0.9220-0.9300 area, at former wave four from where we have seen a nice bullish reversal with a decisive break through the upper trend-line of a corrective channel (circled zone). This break indicates an uptrend continuation for AUDUSD that is now pointing back towards 0.9528. Force index is also reversing higher now suggesting that volume and momentum are coming back into the market.

AUDUSD 4hElliott Wave Analysis Chart

AUD/USD 4-Hour Chart

In fact, notice that latest decline on AUDUSD was in three legs, labeled as A-B-C. This is a structure of a contra-trend price action, called a zigzag. When zigzag is complete, the pull-back will normally be fully retraced.

With that said, we expect more upside on AUDUSD.

 


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Gregor Horvat

Author: Gregor Horvat

Gregor Horvat
www.ew-forecast.com

Gregor Horvat

Grega is based in Slovenia and has been involved in markets since 2003. He is the owner of www.ew-forecast.com, but before that he was working for Capital Forex Group and TheLFB.com. His feature articles have been published on: SafeHaven.com, FXstreet.com, Thestreet.com, Action forex, Forex TV, Istockanalyst, ForexFactory, Fxtraders.eu, Insidefutures.com, etc. He recently won the award on FXStreet.com for Best Forex Analysis in 2016. At www.ew-forecast.com he helps clients and educate them about the Elliott wave prinicple and how to label and track unfolding patterns in real time.  His approach to the markets is mainly technical. He uses a lot of different methods when analyzing the markets such as candlestick patterns, MA, technical indicators etc. His specialty however is Elliott Wave Theory which could be very helpful especially if you know how to use it in combination with other tools/indicators.

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