The forex market is starting to get interesting. The DXY is trying to carve a higher low this week, and gold failed to hold last week’s breakout.
Watch today’s Forex Mid-Week Analysis to see how I’m trading the DXY, EURUSD, GBPUSD, and XAUUSD. Remember to scroll down for more details, including annotated charts.
US Dollar Index (DXY) Analysis
The US dollar is rebounding this week after dropping below 100.20 last week. I discussed how the 99.00 support region was the one to watch early this week.
Tuesday’s candle was the first time the DXY has closed near session highs since early May. The USD also reclaimed recent lows at 99.30.
It’s still early, but if DXY bulls can reclaim 100.20 this week, we could be in for a dollar rally in early June. That said, sellers are likely to defend the 100.20/40 area if tested this week.
As mentioned recently, I prefer a reclaim of 100.20/40. Not because it’s the likely scenario currently but because it would confirm a sell-side fakeout, and fakeouts are my preferred way to trade.
EURUSD Analysis
EURUSD broke out late last week, closing above 1.1200 and 1.1275. The pair also cleared its descending channel resistance on Friday.
However, Friday breakouts are prone to failing due to lower volumes. That’s especially true on the Friday before a US holiday, as was the case last week.
EURUSD remains above key support at 1.1275 for now. But as mentioned in Tuesday’s video, a daily close below that region would confirm a buy-side fakeout. It would also expose 1.1200 and 1.1060.
I’ve had my eye on the imbalances near 1.0600 since April. Imbalances like the one from the early March rally can serve as magnets for the price, as they often “fill in” over time.
However, any valid setup requires a magnet (target) and a trigger. In the case of EURUSD, the trigger for a move lower is a sustained break below 1.1275.
With all of that said, the euro is currently holding above the key level. As always, it’s essential to respect what’s on the chart and avoid trading based on what we want to happen.
GBPUSD Analysis
GBPUSD is pulling back aggressively this week following last week’s breakout. The pound broke above 1.3430 on Friday, but as mentioned above, Friday breakouts are prone to failing.
We’ll see if this time is an exception, but the aggressiveness of the pullback says otherwise.
However, we still have to respect what’s on the chart. As long as the GBPUSD remains above 1.3430 on a daily closing basis, the level remains intact as key support.
Like EURUSD, my preferred scenario is to see GBPUSD break back below 1.3430. A GBPUSD correction is not the likely scenario currently, but a failure above 1.3430 would offer a high-probability short setup.
That would expose levels like 1.3300 and 1.3200. As always, time will tell whether GBPUSD holds above 1.3430 or if it fails.
Gold (XAUUSD) Analysis
Gold also broke out of a bull flag on Friday. However, XAUUSD has also struggled so far this week. Unlike the EURUSD, gold has already failed to hold the breakout from last week.
Tuesday’s close back below $3,320 confirmed a buy-side fakeout on the daily chart. As long as XAUUSD holds below that mark on the high time frames, gold is vulnerable.
Similar to the euro and the pound, gold also has a sell-side imbalance that could come into play. Although we saw a $3,130 retest in May, the region around $3,030 holds a significant amount of open liquidity due to April’s aggressive rally.
Areas like $3,130 and $3,030 could become targets if XAUUSD fails to recover $3,320 this week. Alternatively, a daily close back above $3,320 would keep last week’s breakout alive.
