The dollar index has reached a seven-month low, indicating that traders should anticipate bearish price action for USD-based pairs (USDXXX) and bullish price action for non-USD-based pairs (XXXUSD).

What to Expect Next

We expect the price to continue declining, potentially reaching sell-side liquidity at the previous low of 100.5. However, there is a weekly fair value gap with a bullish order block that could cause a temporary retracement before the price hits this level. We anticipate resistance at the price level of 101.7, where the fair value gap and the order block are located. Despite this potential retracement, it is crucial to align trades with the prevailing bearish order flow unless there is strong evidence of upward momentum.

In Forex trading, when USD is the base currency in a pair, its value is quoted as 1 unit of USD. For instance, in the USD/JPY pair, USD is the base currency and JPY is the quote currency. If the pair is trading at 110, it indicates that 1 USD is equivalent to 110 Japanese Yen. When USD serves as the base currency, it is compared against the quote currency. The pair's price reflects how much of the quoted currency is required to purchase one unit of USD. Pairs like USD/JPY and USD/CAD show USD at the beginning, indicating the amount of JPY or CAD needed to buy 1 USD. Conversely, if USD is not the base currency, it appears as the quote currency in pairs such as EUR/USD or GBP/USD. In these cases, the price indicates how much USD is necessary to purchase 1 unit of the base currency (EUR or GBP).