The Underlying Fundamentals
Last week the Dollar continued to gain against the majors, hitting multi year highs against the Yen and a seven week high vs. the Euro. A fundamental boost from the Bank of England’s Rate hike helped the British Pound buck the dollar’s strength, but it remains well off the recent highs. A few unexpectedly dovish comments from the ECB kept the Euro from following the cable’s lead, though a rebound off strong support levels is likely. The future ECB rate outlook remains uncertain, and in the short term the market will be looking for another fundamental catalyst.

The long term the macro outlook for the dollar is also unclear with several different factors currently moving the market. One key development has begun in the past few months; as Central Banks across the globe have begun selling the dollar to diversify their foreign currency reserves. Russia and China both announced that they are buying other currencies to reduce their dollar exposure. The long term effect of this change in worldwide supply and demand has yet to be seen, but it is important to keep in mind nonetheless. The overall health of the U.S Economy is under a lot of scrutiny right now, and pay close attention to the labor market, the housing market, and the pace of economic growth. If those three factors can combine to achieve a soft landing for the U.S Economy expect the dollar to be more resilient than it has been in recent months.

GBP/USD
The cable bounced off of strong support near 1.9250 last week and is now closing in on the upper end of the recent range. Expect trading between 1.9750 and 1.9300 in the short term. I would aggressively trade a move out of that range, and I favor the long side of this pair in the long term.

EUR/USD
Unlike the Cable the Euro did not bounce off of support, it is merely resting on the 1.29 level. Strong support is evident in the congestion zone between 1.2750 & 1.2850, so expect that to be a short term bottom. I would play the long side of this pair targeting a bounce up towards 1.31 resistance.

USD/JPY
This pair finally broke through the resistance near 119.50. For the past few weeks I have been trading the short side of this pair and last week I was stopped out as it pushed through 120. The strength of this pair has been somewhat unexpected and if support near 119.50 can hold I would be looking to go long with tight stops.

USD/CHF
This pair is becoming overextended at the current levels and has strong resistance between 1.24 & 1.25. I expect some type of sideways movement or consolidation in the near term. I would play the short side of this pair with a sell limit near 1.2530 and a tight stop.

AUD/USD
The volatility of this pair has made it hard to position trade in recent weeks. The longer term trend is still up, though the inability of the Aussie to hold on to the new highs is not a good thing. If buyers cannot reclaim .7900 expect further downside in the short term. Support is @ .7775. 

USD/CAD
After a three month uptrend this pair is finally showing some signs of exhaustion. Resistance is now evident at the upper end of the recent range near 1.18 and support is @ 1.1650 followed by 1.1575. After a few months of good profits I am willing to be patient and stay out of the market until I see a reason to reenter my position.

Derek Frey is Head Trader at Odom & Frey Futures & Options.

Risk Disclaimer 
Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options.