The forex market remains relatively sideways, but things are heating up for EURUSD and other pairs.
Watch today’s weekly forex forecast to see how I’m trading the DXY, EURUSD, GBPUSD, USDCHF, and AUDUSD next week.
US Dollar Index (DXY) Forecast
The DXY has remained relatively choppy for weeks. However, my last analysis on the USD index played out nicely with the dollar regaining some ground above 99.30.
The channel bottom reclaim on April 30th was enough to lift the DXY in May. After struggling for a few days at 100.20 resistance, the dollar index broke free on May 8th, encountering some selling pressure at 100.90.
We discussed the 100.90 level in last week’s forecast. It was an unfilled gap from the April selloff. Whether that gap has filled is tough to tell, but 100.90 is resistance regardless.
From here, we might see more price action from the DXY between 100.20 support and 100.90 resistance. There’s no reason to suspect momentum when markets are still range-bound.
If US dollar bulls can defend 100.20 support and push the USD higher, we could get a retest of channel resistance later this month. That level could be 101.80, the location of a few highs from September 2024 and lows from last month.
One key factor with the DXY is the considerable imbalance created by the April 10th selloff. That imbalance is in the 101.80 region, also a confluence of resistance.
We’ll see if bulls can “fill in” that imbalance from April, but one thing is for sure. DXY bulls must defend the 99.90 to 100.20 support area to have any hope of testing 101.00 or higher.
EURUSD Forecast
EURUSD is at a crossroads. On the one hand, the euro is trading above the 1.1200 support I discussed earlier. On the other hand, the pair broke below a confluence of (former) support on Thursday.
As discussed yesterday, 1.1275 is the July 2023 high. EURUSD has also treated it as key support since mid-April.
Additionally, the March trend line intersects 1.1275-1.1300 this week. That means the EURUSD is technically trading below a confluence of resistance as of Thursday’s selloff.
Patience is essential during times like this. Trying to short the EURUSD while above 1.1200 is ill-advised, and buying the euro after Thursday’s breakdown is also a bad idea.
That leaves EURUSD in limbo as we head into next week. A sustained break below 1.1200 on the daily time frame would confirm a potential short opportunity toward 1.1000 or lower. Conversely, if euro bulls can reclaim the 1.1300 region next week, it would open the door to the 1.1500 highs.
Remember to check on the DXY before trading EURUSD next week. Any EURUSD long will likely fail if the DXY isn’t below that February trend line near 99.80.
GBPUSD Forecast
GBPUSD has been off my radar for weeks. Like its euro counterpart, the pair has remained sideways since mid-April, making it challenging to trade.
With that said, today’s session tested a critical level at 1.3200. It’s the April 3rd high and a level GBPUSD refused to retest for weeks in late April and early May.
Today’s session sweeping those lows and testing 1.3200 feels significant. However, the recent choppy price action makes today’s move much less appealing.
Whether we see a deeper pullback from GBPUSD next week will depend on levels like 1.3200. A sustained break below would pave the way toward 1.3100.
That said, there’s no reason to be bearish on the pound, given its aggressive uptrend since April and today’s bounce at 1.3200.
The counterargument to a bullish narrative is the numerous sell-side imbalances that formed during the mid-April rally. Those imbalances extend down to 1.2830.
I’m not insinuating that GBPUSD will test those areas, but there’s no question that they exist.
For further upside, GBPUSD will have to overcome 1.3434 resistance on the high time frames, which would expose areas like 1.3630.
USDCHF Forecast
The USDCHF price action since April is fascinating. It might look like another sleepy range in the forex market until you zoom out. I mean, way out.
Before last month’s breakdown, USDCHF traded between 0.8360 and 1.0330 for 10 years. The 0.8360 floor was also range support for the pair since April 2023.
The bottom line (literally) is that 0.8360 is incredibly significant. Now, most traders would see this as a selling opportunity, and maybe it is.
However, a more appealing USDCHF setup would be a high time frame reclaim of 0.8360. That would confirm an incredibly significant sell-side fakeout and open up much higher levels.
Markets often “sweep” established range highs or lows. Institutions know there’s deeper liquidity beyond a range (the lows in the case of USDCHF) and need it to fill their massive orders.
But first, USDCHF bulls must reclaim levels like 0.8360 and even 0.8400. Until then, I must respect what’s on the chart.
AUDUSD Forecast
AUDUSD has been a surprising pair to watch. I shared this broadening wedge in February when I was shorting the buy-side fakeout, which is shown below. I even had the lower level drawn at the time.
I didn’t expect AUDUSD to retest the bottom of the wedge, considering it was nearly 500 pips away then. But that didn’t stop sellers from doing just that in April.
Surprisingly, the Australian dollar tested wedge support at 0.5920, resulting in an aggressive rally. Buyers subsequently retested wedge resistance this week.
So, will we see another run at wedge support? That seems less likely, considering how broad the pattern has become in recent months. It would take a cataclysmic event to trigger that kind of move.
For now, AUDUSD remains mostly range-bound. However, sellers forced a breakdown on Wednesday below the 0.6440 level, which could be significant next week.
If sellers can hold the line at 0.6440 and the DXY can rally as discussed above, then AUDUSD could test 0.6340 support or lower.
Like many major pairs, AUDUSD has had a few glaring sell-side imbalances since April. Whether those will be revisited remains to be seen.
