The Stars Aligning for the Dollar: EURUSD at New 2018 low, USDCHF Might Reach 1.0850

by Alejandro Zambrano

Posted on November 12, 2018 at 10:46 AM

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The stars are aligning for the Dollar and today’s decline in the EURUSD might be the start of a new multi-week trend of a stronger Dollar. If the Dollar indeed turns higher, then this suggests that USDCHF might be about to trade to 1.0850 from today’s level of 1.0095.

The EURUSD has been trading sideways since May 2018, and in August the price tried to trade lower but failed just to test the upper end of the last few month’s range on September 20. However, on both occasions, the EURUSD reverted to the approximate mid-point of the last few month’s range at 1.16.

Today, the situation is different, and the price slid to a new 2018 low of 1.1240 after it breached the August low of 1.1301, and this might set the stage for further losses in the weeks ahead.

When the price breaches a significant support level such as the August low the price will seek out the next major support level, and today that is the June 19, 2017 low of 1.1117.

The price is also guided lower by a failed head and shoulders pattern. This pattern suggests that the EURUSD might decline to 1.1077 and is derived by subtracting the difference between the head and neckline from the right shoulder at 1.1526.

What May Overturn this Bearish Outlook?

Technically, the trend will remain bearish as long as the price trades below Friday’s high of 1.1365, and a breach to this level might negate the bearish outlook. However, until this happens, I suspect traders will use any corrective bounces to the proximity of the August low at 1.13 as an opportunity to short-sell the EURUSD.

EURUSD Daily Chart

USDCHF is also looking exciting and may further cause the EURUSD to trade lower if the USDCHF start to trend higher.

The USDCHF has spent the last two weeks’ trying to complete a massive head and shoulders bottom. The left shoulder is the July 2017 low, while the head is the 2018 low at 0.9187, and the right shoulder is the September 2018 low. The neckline goes via the May 2018 high of 1.0057, and if the USDCHF manages to establish itself above 1.01, I suspect the price might head towards its head and shoulders target of 1.0850, with a pause at the 2016 high of 1.0346.

Time will tell if the US Dollar will gain in the weeks ahead, but the “stars are aligning” with the EURUSD and USDCHF supporting further strength and potentially soon the be followed by USDJPY and USDCAD.

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USDCHF Weekly Chart

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About the Author

Alejandro Zambrano

Alejandro Zambrano combines extensive professional experience and a common-sense attitude to offer LondiniumFX members a strategy that focuses on making fewer, smarter trades and building members’ understanding of the markets and the rationale behind investing. He is also the Global Chief Market Analyst with and ATFX UK. Before founding LondiniumFX in 2016, Mr. Zambrano was Head Analyst at FXCM’s London desk.