USD Rallies into a Major Week - Fed, PCE, NFP on the WayReversals of long-term moves can be tough to work with, especially for shorter-term traders.
While fundamentals are important for shaping future price moves and technicals are key for explaining past moves, while also allowing for strategy and risk management, it's sentiment and positioning that probably matter more.
Because if any and everyone in the world that wants to be long already is, well it doesn't matter how positive the news is if there's simply nobody left to buy. And if there's no influx of fresh demand, and only incoming supply, well, then price can drop, even on good news. And at that point, a heavy one-sided market will take notice of falling prices even in the face of good news, when price should be going up, and they'll be disconcerted to hold long positions, which can lead to even more supply, more selling, and in-turn, lower prices.
As the old saying goes, if a market doesn't rally on good news, well then look out below.
This shows in various ways on varying time frames in numerous markets but from a longer-term perspective, that shifting trend is akin to turning a cruise ship in the middle of the ocean - it's not going to happen suddenly. It takes time, it takes shifting, and it takes the slow grind of late-to-the-trend bulls turning into ahead-of-the-curve sellers.
This is what allows for the build of wedges, just as I had looked at earlier in the month in both USD and EUR/USD. Bulls suddenly get shy as prices approaches highs, although they remain aggressive on pullbacks and tests of support. This leads to a weaker trendline atop the move and, eventually, unless buyers get motivated to punch up to higher-highs with a new breakout, that motive for profit taking can soon take over.
In the USD, the sell-off in the first half of this year was a grinding matter, and the polar opposite of the trend that had held in DXY as we came into 2025. But, now the question is whether resilient US data leads to profit taking from bears and as we saw again last week, sellers have been showing lacking motivation at tests of lows or around support.
The big question for this week is whether we see that shift take-hold on a larger basis. We've seen sellers getting shy around lows, but are buyers ready to punch up to fresh highs in the USD? There's certainly ample potential for motivation as given the economic calendar with FOMC, Core PCE and NFP in the final three days of this week. - js
