Although April gave us lots of good opportunities to profit from the forex market, May could be setting up to become an even better month, with interesting opportunities in both the US dollar/Aussie dollar and the US Dollar Index.
The many sudden changes we have seen over the past month in the forex market in particular makes it difficult to forecast what’s going to happen in May. However, using the tried and tested technique of support and resistance areas in the charts is always good for helping us see things more clearly.
So, let’s jump right into it and see how things are looking.
As usual we’ll start by taking a look at the US stock market, or the S&P 500 Index to be more specific. This is the broadest measure of stocks in the US, and is most often used to gauge the overall sentiment of the US stock market, and may sometimes even act as a leading indicator for what is happening in the stock market globally as well.
As can be seen on the S&P 500 chart, the stock market has seen a huge recovery rally since the sharp sell-off at the end of 2018. So far, 2019 has therefore been an amazingly good year for stock investors in the US, posting a gain of roughly 25% year-to-date.
As we enter May, the S&P is once again pushing new all-time highs. Although it still remains to be seen if the stock market will be able to break through the highs from late last year, the momentum is currently strong and bearish bets seem very risky at this point.
US dollar/Australian dollar
An interesting forex pair to follow right now is the US dollar/Australian dollar. This pair has been trading in a zig-zag pattern inside a narrowing trading range since the beginning of the year, which it sooner or later will have to break out from. The question, however, is when the break-out will occur, and whether it will be to the upside or downside.
The truth is that it is still too early to tell when or where the break-out will occur on the USD/AUD. However, based on the upwards pointing shape of the pattern and the previous uptrend, the pair seems to be pushing higher.
It’s still too early to trade this pair on the daily timeframe, which is shown in the chart, but it could set up to become more interesting during the month of May.
US dollar index
When we last looked at the US Dollar Index (DXY) back in March, we saw that it was clearly trading in a range, and the future direction was highly uncertain. Now, we can see that the DXY has managed to break out from that range, and started to resume its previous uptrend.
Unless something extraordinary happens, it now appears as if the DXY is going to continue higher in the next days and weeks. We also still have the previous resistance area in place, which now acts as support, around the 97.50 level. Entering a long trade if that resistance area gets tested and holds may therefore be an interesting opportunity for trend followers and momentum traders.
Unlike the other US dollar-related forex pairs, the DXY is a weighted index of the price of US dollars against a basket of other major currencies. As we have mentioned on this blog before, it is probably one of the best ways to get an objective look at how the dollar is really performing, without being distracted by other individual currencies.
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