The US dollar has been weakening since the Federal Reserve pointed rate hikes would slow down pretty soon. The Fed raised interest rates throughout almost the whole year, which caused a massive strengthening of the USD against all currency pairs. However, this could reverse soon.
USD/CAD forming head & shoulders
As the US dollar strengthened against all fiat currencies, it also drew USD/CAD higher. USD/CAD almost reached 1.4000 before crashing 500 pips to 1.3500. The currency pair just formed a very well-known formation called head & shoulders, which could send it much lower. A weaker dollar is also expected in the near future, so USD/CAD looks bearish both from a technical and fundamental perspective.
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Traders should be careful by using wider stoploss as USD/CAD can still go up a little. However, it broke the neckline of this market formation, probably heading to the closest support zone. There is also a trend line with nearing moving average (EMA200), so it makes sense to place a profit target between 1.3150 and 1.3200.
USD/CAD daily chart, source: tradingview.com
EUR/AUD with a pullback opportunity
EUR/AUD broke resistance at 1.5320 back in October, which then became a support level. After that, the currency pair struggled to get higher, but the latest move shows a false breakout downward with the potential to continue its uptrend. EUR/AUD bounced from the support and the trend line, but it also confirmed this trading signal with a bullish divergence.
The divergence clearly shows there is an upcoming move upward that could probably send the currency pair to another resistance at 1.6232. There is a potential for 800 pips in the upcoming weeks. However, waiting for a confirmation signal at lower timeframes is recommended because the trend line could still be broken, sending the currency pair back down.
EUR/AUD daily chart, source: tradingview.com
USD/JPY correction ahead?
USD/JPY is one of the most trending currency pairs of 2022, as it rose over 30%. The strong dollar and weak yen allowed this currency pair to literally rise from 114 to 152 in less than a year. But the Bank of Japan doesn’t like that, which is why it intervened on October 21st, sending USD/JPY down by more than 3% in a single day.
Also read: Weekly macro report – Fed is certain about one thing
Since then, USD/JPY has struggled to maintain bullish momentum. The bulls are defending the current zone, but there seems to be a lot of selling pressure as the currency pair is breaking the trend line. The bearish signal is invalid until the currency pair breaks the trend line. However, if USD/JPY continues below it, sellers have a potential profit target of about 700 pips to support 139.4.
USD/JPY daily chart, source: tradingview.com
Conclusion
There are many signals in the market that the US dollar could weaken in the short term. This is something that traders could use while others are fearful of the ongoing trend. The next Fed meeting is in the middle of December. Thus, the traders should stay cautious around that time.
USD/JPY tumbling hard.