In my previous piece last week, I forecast that the best trades would be long USD/MXN and long USD/ZAR above the previous week’s highs. USD/MZX closed down 0.22% below the previous week’s high, while USD/ZAR closed up above the previous week’s high by 1.05%. This worked out well, as it means the trades gave an average win of 0.42%.

Last week saw a strong rise in the relative value of the U.S. Dollar, while everything else except the British Pound fell, especially the Canadian and Australian Dollars. The U.S. stock market was largely unchanged. Crude Oil fell again.

The major events of last week were the policy inputs from the FOMC and the ECB, which had the effect of boosting the U.S. Dollar and weakening the Euro.

Fundamental Analysis & Market Sentiment

The difference between success and failure in Forex trading is very likely to depend upon which currency pairs you choose to trade each week, and not on the exact trading methods you might use to determine trade entries and exits. Each week I am going to analyze fundamentals, sentiment and technical positions in order to determine which currency pairs are most likely to produce the easiest and most profitable trading opportunities over the next week. In some cases it will be trading the trend. In other cases it will be trading support and resistance levels during more ranging markets.

Fundamental analysis tends to support the U.S. Dollar, as American economic fundamentals continue to look strong. The weakest and most vulnerable currencies remain the Mexican Peso (due to the tariff dispute and current Mexican election opinion polls), as well as the South African Rand (due to a general weakness in emerging markets), and the Canadian (tariffs) and Australian (tariffs and poor employment data) Dollars. The Euro is also weak. It would make most sense to be short CAD and AUD as well as arguable the EUR, plus MXN and ZAR above last week’s high prices.

The week ahead will probably be dominated by monthly central bank policy input from the Bank of England and the Swiss National Bank.

Technical Analysis

U.S. Dollar Index

The weekly price chart below shows a strong bullish engulfing candlestick move was made over the week, with the Index remaining above its price level from both 3 months ago and 6 months ago, sitting in a long-term bullish trend. The candlestick must be called bullish, even though there is an upper wick, as it is not relatively large. So, the trend is bullish, but the price is quite close to a resistance level at 12085 which might be an obstacle to the Dollar rising higher straight away.

USD/CAD

This pair spent two weeks trying to break above the resistance level at 1.3050 and it finally managed to do so towards the second half of last week. When the break came it was very strong and fast, and it was at the heart of the movement in the Forex market. The week closed right on its high and was the highest close in about one year, both of which are very bullish signs. It would be a surprise if the price did not rise here over the next week also although the psychological level at 1.3250 might take a little work to overcome.

AUD/USD

This pair spent the last few weeks trying to break below the bullish turn which was made at about 0.7500 and managed to do so with a surprising movement towards the second half of last week. When the break came it was very strong and fast. The week closed right on its low and was the lowest close in about one year, both of which are very bearish signs. It would be a surprise if the price did not fall here over the next week also although there is inflective support below just above 0.7400, and another inflection just below that from a year ago, so a break to 0.7300 and below might be difficult.

USD/MXN

The Dollar has advanced beyond last week’s high price, rising strongly, yet falling back at the end of the week and printing a significant upper wick which dampens the bullish picture somewhat. The price had been trading in relative “blue sky” before dropping sharply on Friday, but still ended the week well up. The large upper wick is a little concerning, so we should want to see the price make a new high above last week’s before being ready to enter a long trade, even though we have the highest weekly closing price in about six months.

USD/ZAR

The Dollar rose quite strongly against the South African Rand last week. The price had been trading in relative “blue sky” before dropping on Thursday, but still ended the week well up. The weekly close was quite close to the high of the week, which is a bullish sign.

Conclusion

Bullish on the USD, bearish on the CAD and AUD, bullish on USD/ZAR and USD/MXN above last week’s highs.