Room For More U.S. Dollar Weakness After The Government Shutdown

By: Gregor_Horvat

USD is sharply down across the board after the US government shutdown. Some would think that US stocks futures will turn lower, but we in fact can see higher prices since the news came out. However, we may see a risk aversion (lower stocks) if government will be shutdown for too long, lets say around 3 weeks. In the past the longest close was 21 days, back in 1995 (source Wikipedia). The longer the shutdown will last, more nervous investors will become.

From a technical point of view we see room for more USD weakness as long as market trades beneath 80.75. Meanwhile of course we expect higher majors, such as EUR, GBP, CHF and even AUD which is also bullish and supported fundamentally after RBA kept rates unchanged at 2.5%.

USD Index daily

On the AUDUSD chart we can see that pair found a support around 0.9220-0.9300 area, at former wave four from where we have seen a nice bullish reversal with a decisive break through the upper trend-line of a corrective channel (circled zone). This break indicates an uptrend continuation for AUDUSD that is now pointing back towards 0.9528. Force index is also reversing higher now suggesting that volume and momentum are coming back into the market.

AUDUSD 4hElliott Wave Analysis Chart

In fact, notice that latest decline on AUDUSD was in three legs, labeled as A-B-C. This is a structure of a contra-trend price action, called a zigzag. When zigzag is complete, the pull-back will normally be fully retraced.
With that said, we expect more upside on AUDUSD.

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Ew-forecast.com is providing advanced technical analysis for the financial markets (Forex, Gold, Oil & S&P) with method called Elliott Wave Principle. We help traders who are interested in Elliott Wave theory to understand it correctly. We are doing our best to explain our view and bias as simple as possible with educational goal, because knowledge itself is power.

Gregor is based in Slovenia and has been in Forex market since 2003. His approach to the markets is mainly technical. He uses a lot of different methods when analyzing the markets; from candlestick patterns, MA, technical indicators etc. His specialty however is Elliott Wave Theory which could be very helpful to traders.
He was working for Capital Forex Group and TheLFB.com. His featured articles have been published in: Thestreet.com, Action forex, Forex TV, Istockanalyst, ForexFactory, Fxtraders.eu. He mostly focuses on currencies, gold, oil, and some major US indices.

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