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#1 01-03-2021 11:35:42

Admin & Trader
From: Paris - France
Registered: 21-12-2009
Posts: 3068

Forex: the top 2 pairs to watch for this quarter

Forex: the top 2 pairs to watch for this quarter

The price action on currencies this year has created a risky trading environment. We can say that the price action for January and February didn't come as a surprise. After all, all investment companies predicted late last year that the dollar would fall and that stocks would have more room to rise.

They were right, because a risky environment means a higher euro, British pound, Australian dollar, Canadian dollar, oil, equities and a weaker US dollar. The only pairs that act differently are the commodity pairs and the USD/JPY which follows rising stocks. Although the correlation of the USD/JPY with equity markets has changed in recent years, the pair recently acted as it was supposed to in a risky environment.

However, all that changed last Thursday. With only one trading day left in the month, a few important reversals appeared on the currency dashboard. As always, the decline is more aggressive than the rise due to the panic effect.

For the remainder of the quarter, the most interesting price action is expected to be in the AUD/USD and EUR/USD pairs.

1. AUD/USD - The break in the uptrend was accentuated due to divergent dynamics

Until Thursday, the AUD/USD pair was leading the risk environment for both months of the year. It exceeded 0.80 and remains one of the best performers during the pandemic.

The reasons for this are obvious if one considers the commodity response to monetary easing policies around the world. As Australia is a major exporter of mineral resources and other commodities, rising commodity prices have also triggered a rise in the Australian dollar. The US dollar was the obvious victim, as the global reserve currency has fallen sharply since the Fed opened swap lines in April last year.

Despite the two-month rally, Thursday's price action signals a potential turnaround. The pair formed an upward wedge on its way to 0.80 and has reversed sharply. The downward movement has already broken the uptrend line that was supposed to support it, triggering a race for the measured movement.

The price action that follows an upward wedge usually retraces at least half of the distance travelled by the wedge. Sometimes it traces the entire corner. Therefore, a movement back to 0.77 or even 0.75 in the future should not be overlooked, especially if Thursday's sell-off continues.

Momentum is not helping the Australian pair either. Price action has diverged, and the latest high above 0.80 has lacked momentum - another reason to turn lower on the AUD/USD pair.

2. EUR/USD - Will dynamic support hold again?

The EUR/USD pair has been on the rise since the Fed opened USD swap lines in April. As the chart above shows, the pair remains in an uptrend despite the downward movement in January. In fact, it can be said that the series of higher highs and lows has remained intact so far.

However, the period ahead promises to be interesting. If the EUR/USD fails to reach a new high, market participants will be looking to move back towards the 1.20 level. The round number is a huge pivot level as it took the market a few months to consolidate below it before breaking out of the uptrend.

The ECB is still struggling to deal with the EUR/USD exchange rate at such high levels, but so far in the trading year it has not had much to do to stop it. Judging by the rise in US yields, it could get some unexpected help from the US as the dollar is showing signs of life.

At this point, the technical picture is unchanged. The EUR/USD has reacted to dynamic support on two occasions. While other dollar pairs such as AUD/USD or GBP/USD reached new highs last month, the EUR/USD failed to do so. This shows the weakness of the rest of the quarter and the focus is on the series of higher lows.

"Anything worth having is worth going for - all the way." - J.R. Ewing



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