Most dollar pairs seen in a range

The dollar index and most dollar pairs traded in a range, but reversed off their respective support and resistance areas as predicted last week. The pairs continue in range-bound action, thereby consolidating after a strong directional move ended in the middle of August. As mentioned earlier, the strategy in range-bound markets is to sell at the high of the range and buy at the low of the range.

The dollar index continues to the stuck in a range of 82-83.50 after having a bull run since early August. Last week, the index touched the 82 area as a support and closed at 82.70, right in the middle of the range, which is a no-trade zone as prices are not at support or resistance.  A note of caution is warranted for the range trading strategy. The more times the extremes of the range are hit, higher the chances of a breakout or breakdown. It is hence, prudent to have stops in place to minimise losses. Another key indicator is also predicting a breakout soon — the Bollinger Bands, which measure the price in relation to the 20-day moving average with two standard deviations. As prices move in a range, the standard deviations move closer to compress price, which often leads to a strong breakout in price.
EUR/USD
Following the dollar index closely, the euro reversed its uptrend at the resistance of 1.2930 identified last week. The euro is relatively weaker than the other pairs as it is near the bottom of the range, unlike the dollar index, which closed on Friday in the middle of the range. We would still continue to trade the range till the range is broken.

GBP/USD
The cable was weaker than the dollar last week. It hit support at the 1.52 area and bounced sharply. The pair hit resistance in the 1.55 area and fell. The 1.55 area was resistance as prices had turned at the level earlier. GBP/USD has strong support in the range on 1.5118 and 1.5263. The resistance area would be 1.5530 to 1.5625. These are wide ranges, but the pair is extremely volatile, due to which the levels tend to be broad.

AUD/USD
AUD/USD gained relative strength to the other pairs last week and broke out of resistance, unlike our forecast. The pair now heads to the all-time high of 2010 in the 0.94 area. In the past, there was a lot of trading in the range of 0.9250 and 0.94 and the price now is in that range. We would be very cautious taking long positions in the pair now and keep a bearish bias.  It is not clear if the pair can breakout of resistance at the 0.94 area. If prices hit that area again, it will be the third return, which makes resistance weak. However, each time prices hit 0.94, it has made a new low, indicating substantial supply exists at that level.

USD/JPY
The yen continues to probe deeper into its support zone of 81-84 and has not broken out its downtrend. Going short on this pair has been very successful in the past, but given that prices are at long-term support, it is not prudent to short the pair, which hasn’t closed above its 20-day exponential moving average after June, indicating the bearish trend continues. A close above the moving average, which was at 84.63 last week, will indicate trend reversal.

USD/CAD
The pair is moving a progressively tightening range to form a chart pattern called the symmetrical triangle. A break out of the triangle on the weekly chart can provide direction to the pair.

The writer is editor, www.capturetrends.com and based in Chicago