A confluence of factors all conspired to give the poor old US Dollar some much needed bullish momentum last week, coming in a variety of ways and from a variety of sources.
The first of these was the more hawkish tone adopted by the FED, which resulted in a huge sell off in the eurusd, which in turn had already coincided with a major resistance level at the 1.3830 area on both the daily and weekly charts. The quote that triggered this sell off was the terminology used by Bernanke when referring to the economy expanding ‘at a moderate pace’, which was enough to re-ignite speculation about the start of the taper.
Second, with eurozone inflation figures coming in much lower than expected, this has raised the possibility of the ECB cutting interest rates as early as this week. In addition German data was relatively weak, and on Thursday retail sales continued to post a decline for a fourth month in a row. All suggestive that the ECB will have to do something to arrest this sudden downturn. Finally, from a fundamental perspective the US Dollar was also helped at the end of the week by some mildly encouraging figures, both in unemployment claims and in the ISM Manufacturing PMI.
Moving to the technical picture on the daily chart for the US Dollar index, last week’s price action resulted in a breach of a key level at 10475, as shown by the green dotted line, with the index ending the week at 10576 with a wide spread up candle. This also resulted in a break of the resistance at the 10500 price area, and with a possible platform of support now in place, we could see some further upside momentum for the US Dollar, provided we see a close above 10580 where resistance now awaits.
Much now depends on the words and actions of the central banks with an Australian interest rate decision due later today, followed by Europe and the UK on Thursday, before the week rounds off with a second dose of NFP on Friday along with a speech from Fed Chairman Ben Bernanke.
By Anna Coulling
Hi Anna,
Thanks for your analysis. I found some very helpful articles on your website.
I actually bought your book Volume Price Analysis yesterday on amazon and just finished chapter 2. I can already see where it’s going and I’m excited to continue and will definitely make an update once I finished it. It confirms my trading strategy and I can see how powerful the combination of price and volume is.
As I trade also the Spot FX Market, there was always the debate about not being able to get an accurate volume analysis. In your book, you mention how tick volume is 90% reflective of actual volume and I did some research and found a study that actually confirms that.
Now my only question is, which forex broker to choose that has the most accurate tick volume data. Some of them differ, and so I wanted to ask you which one you have to do your analysis. I’m obviously not asking for your live account or an endorsement of any broker. But I would be really grateful if you can speak from your own experience regarding the charts/brokers that worked well. I want to be able to follow your analysis and wanna make sure I’m on the same page. Thanks a lot for your insight and keep up the great work.
Aaron
Hi Aaron – first of all many thanks for your very kind comments, and I am just so delighted that you are enjoying the book and becoming a volume convert:) To me, volume price analysis just makes sense, and another of the many benefits of using this approach when trading, is that it keeps our brain in analysis mode, and stops us reacting to the fight or flight response which is always the emotional reaction to any stressful situation. So VPA is powerful on many different levels. I was so pleased you were able to verify the studies of tick volume as a proxy for real volume, and I have a small favor to ask if I may – would you mind sending me the link to any studies you discovered as I would be very interested, and I also like to share this with other traders. With regard to your question on MT4 brokers and data feeds, the one that I generally suggest is OANDA as they have one of the largest historical tick databases, (and their MT4 demo platform never expires which is always useful) but FXCM, Alpari or FXpro would be equally good. The ones to avoid would be the exotic off shore brokers who are generally white label platforms. I hope this helps and please do keep in touch, and if you do have any information on your research on tick data that would be great and much appreciated. My email is anna@annacoulling.com. Thank you so much once again for your very kind comments and all best wishes – kind regards – Anna