Markets remain sideways, but the technical landscape couldn’t be more attractive.
Watch today’s forex mid-week outlook to see how I’m trading the DXY, EURUSD, GBPUSD, and XAUUSD.
US Dollar Index (DXY) Forecast
The DXY is at a crossroads. The rebound from the 97.70 confluence of support looks constructive, as does Tuesday’s break above 98.20.
However, dollar bulls are under pressure again on Wednesday, with the DXY testing new support at 98.10. That’s the top of a descending channel from August 1st.
If DXY bulls can hold the line at 98.10, we could see further relief from the US dollar. Key resistance levels include 98.50/60 and 99.35.
On the other hand, a failure to hold above areas like 98.10 would suggest more dollar weakness.
EURUSD Forecast
EURUSD broke its August 5th trend line on Tuesday after testing its 1.1691 imbalance. However, despite Tuesday’s selloff, the EURUSD remains mostly sideways.
The euro is technically bearish while below 1.1680 on the high time frames. The inverse is valid for the DXY while above 98.10. Of course, things could change as we head into Thursday’s PMI numbers out of Europe.
Given the indecision and Thursday’s event risk, a seat on the sideline isn’t a bad idea. There’s no sense in forcing trades ahead of those PMI numbers. A better approach is to wait for something more favorable from EURUSD.
GBPUSD Forecast
GBPUSD has been much weaker than its euro counterpart. I discussed the 1.3520 breakdown in Monday’s video, along with the 1.3529 imbalance that could serve as a “magnet” and resistance.
Sure enough, Tuesday’s high reached two pips above the 1.3529 imbalance before GBPUSD targeted the 1.3470 support area.
Currently, GBPUSD is catching a bid at the 1.3470 highs from August 11th. However, so far, the bounce hasn’t been very convincing.
If GBPUSD loses 1.3465 on a 4-hour closing basis, the 1.3384 imbalance could be next. Keep in mind that this 1.3465 support area may extend as low as 1.3450 when viewed on the daily time frame.
Gold (XAUUSD) Forecast
Gold showed signs of bottoming on Wednesday, as it broke out of a falling wedge pattern. However, the US dollar has also looked more constructive this week, which leads to some mixed signals for XAUUSD.
Typically, gold and the US dollar share an inverse relationship. It’s challenging to get too bullish on XAUUSD with the DXY holding above 98.10.
There is also a sell-side single print, or imbalance, at $3,305. Gold came close to tagging the level on Tuesday, but the $3,311 low didn’t quite reach the single print.
With that in mind, we could see gold sweep Tuesday’s low to retest the $3,305 area thoroughly. That’s especially true if XAUUSD fails to hold above $3,335 on a 4-hour closing basis.
