Powell is Head and Shoulders above the rest: DXY, EUR/USD
Joe Perry February 25, 2021 10:21 PM
The DXY broke below the neckline of a head and shoulders pattern!
Fed Chairman Jerome Powell continued with his dovish rhetoric yesterday when he testified on day 2 regarding Monetary Policy in front of Congress. The theme from the Federal Reserve is that they are in no hurry to raise interest rates or take their foot off the pedal regarding stimulus. He said that although inflation expectations have been creeping into the economic data and the bond market, he viewed this as a good thing, noting that it shows confidence in the recovery. He also indicated that they will not start raising rates until the Fed believes they can reach its goal of maximum employment. He also seemed to defer some questions to the fiscal government, noting that they must do as much as possible to create fiscal stimulus, i.e. the $1.9 trillion fiscal stimulus package.
Given the continued extreme dovishness of Fed Chairman Powell, the US Dollar Index took a hit. On a daily timeframe, the DXY broke below the neckline of a head and shoulders pattern which began after the breakout of the descending wedge from the beginning of the year. Price retraced 50% of the wedge from the November 4th, 2020 highs to the January 6th lows, forming the head, near 91.60. Price then moved lower and formed the right shoulder, decisively breaking the neckline after Powell’s testimony. The target for the head and shoulders patter is the height from the head to the neckline, added to the breakdown point of the neckline, which is near 88.65. However, price must first take out the support lows from January 6th near 89.21. Resistance is at the neckline near 90.20.
Source: Tradingview, City Index
Since EUR/USD makes up 57% of the US Dollar Index, the Euro pair acts inversely to the DYX. Since the beginning of the year, EUR/USD has been in an inverted Head and Shoulders pattern. When the DXY broke significantly through the neckline, so the EUR/USD. The target for the inverted Head and Shoulders pattern on the daily timeframe is near 1.2375. However, price must first move through the January 6th resistance high of 1.2350. Bulls will look to buy dips on a retest of then neckline near today's low at 1.2155.
Source: Tradingview, City Index
Note that head and shoulders patterns are well noted in the markets. Use patience when looking for an entry price. Often there is a retracement to the neckline, in order to squeeze out weak longs. That may be the optimal time to enter!
Learn more about forex trading opportunities.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.