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Hi, and welcome to today’s Blueberry Markets video update with me, John Kibbler, Head Currency Analyst.
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In this video, we’re going to through the Forex Market Outlook. We’re going to look at the currencies’ strengths and weaknesses and what we could be looking for the week ahead.
Let’s bring in the strength and weakness table where we can see quite a few changes. The US Dollar was the weakest currency last week. We can see also that the JP Yen weakened slightly.
What’s of interest to me is that the NZ Dollar has gone to plus seven, which is an extreme overbought condition. We’ve got the US Dollar at minus seven, which is that an extreme oversold condition and we’ve got the JP Yen that has entered that oversold condition. To me, instead of continuing to look to continue to sell the US Dollar aggressively, I’m going to be a little bit more cautious. We may start to see a little bit of a reversal to this market, but I want to be super careful.
NZD/USD is the perfect reversal pair because you’ve got the divergence in the currency strength. You’ve got both ends of the scale, here, with the Kiwi being in that really strong overbought condition, and the US Dollar in that oversold condition. That’s like a perfect reversal pair if we do see that weakness start to come in.
Let’s go to the charts, let’s look at the US Dollar and in the week. We spoke about the US Dollar seasonality; and we said that towards the end of July or the start of August, the market would find some support. We’ve got quite a few factors into play, we’ve got to the fact the US Dollar index is at these two huge support level, and we can see this nice trend line running, through here. We’ve also got this horizontal level of support where the market has reacted from numerous times.
We then have seasonality suggesting that the market bottoms out through the end of July or the start of August, which is where we’re at now. We also have the strength and weakness table, suggesting that the US Dollar is extremely oversold. There are many factors here suggesting that we could see a reversal to the US Dollar weakness.
Let’s jump into that daily timeframe and see what we need from this market to start buying it again. Well, for me, I need to see some reversal pattern.
You could look at the four-hour timeframe. The four-hour may be a little bit early, but you could also be looking at this daily timeframe or what we could be looking for is for the price to form one of our reversal patterns. That could either be a double bottom pattern or an inverse head and shoulders pattern, where we could get a breakout of the trend line that would be quite interesting to see, through here, and we could get our normal changing cycle move, through there.
What we need to see is the market potentially form reversal patterns. Keep an eye out for those on the US Dollar Index, but we could be seeing that potential move forming through here. I think that the market is very oversold. If you look at the weekly timeframe, we can see we’ve even got the RSI going into an oversold condition. The US Dollar is going to be where we’re going to be focusing some attention now.
If we go to the NZD/USD, NZD/USD is on that list in an extreme overbought condition from the strength and weakness analysis. Again, the weekly is going into that overbought condition. The last time we saw that we saw this move out of it. We are approaching that zone once again with the price at the 0.67 area. We may get something similar here, wherein we get that huge reversal option. The trend is starting to slow down a little bit, and what we could see again or what we need to identify is those reversal patterns. If the market does push back up and break through the lows there, we could see something like this happen: we could be looking for those double top patterns or anything here suggesting that weakness is starting to show through. We could also see a huge reversal in this current market trend. So, keep a good eye on that. The trend could continue up because it is strong versus a weak currency, but the fact that they’re at extremes – the fact that we’ve got that seasonality in play – could suggest that we’re going to see that potential reversal coming into play quite well. So, quite like Kiwi on a reversal point of view.
I’m going back to strength and weakness table; it’s got Kiwi in that position when we were looking at shorting NZD/CHF. We’ll go to that chart, but there’s another chart I think could do quite well going into this week. With NZD/CHF, we’re already short, but now we’ve got Kiwi at that overbought condition. Swiss Franc is gaining a little bit of value. We could see the likes of this market to continue towards the downside. We have immediate support being this weekly low, through here.
We’ll go to the daily timeframe where we can see that area there will be almost our immediate area of support, but I imagine NZD/CHF may continue to break to the downside and see some trend form here. We’ve taken these lows out recently, so we may get a retest of that this week to further short opportunities.
If we go to a four-hour timeframe, for instance, it will be breaking into new lows. So, I’ll be watching NZD/CHF trends because this could be another one that takes advantage of some potential NZ Dollar or weakness coming. So, keep an eye on that one, but I do quite like the potential move, through there.
It’s the same with NZD/JPY retest of these previous structure highs. NZD/JPY would be quite high on the list because you’ve got the NZ Dollar is in that overbought condition, you’ve got the JP Yen being in that oversold condition. So, we’re going to be looking for that key reversal, through here.
Suppose the market comes to retest these structure highs, through here. Again, maybe it could form some double top pattern or some reversal pattern, through here. So, focusing on those reversal pairs going into this week.
We are looking at the weekly timeframe to gauge what’s happening there. We’ve got a bit of a pin candle closing back within the previous candle ranges. Again, looking at some weakness starting to form on these markets. We need to see that clarification in the daily timeframe trend and give us a good idea of where this market could be heading.
Keep an eye on your majors this week with regards to the US Dollar. Keep an eye on NZD/USD, NZD/JPY and NZD/CHF, in particular. They’re looking like our market that we want to be focusing.
Thanks for watching this video update, and I’ll catch you soon.
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