USDDKK approaches critical resistance, cautious bears wait

After the extended bearish drop in the price, USDDKK pair found some strong support at 6.0255. The formation of the bullish engulfing pattern at the major support level at 6.0255 pushed the pair towards the major resistance at 6.2187. But the attempt from the bulls was really weak and the pair again slipped lower forming a bearish engulfing pattern. But this time, the bulls quickly regained their momentum when the price reached the minor support level at 6.1069. Though the bears initially pushed the price below the critical support at 6.1069 the higher closing of the price above the support at 6.1069 formed a nice bullish pin bar.

Figure: USDDKK daily chart analysis

Bullish scenario

If the bulls manage to retain their strength, the pair is most likely to test the critical resistance level at 6.2187. This level is going to act as a significant resistance level for this asset since we have a cluster of candles above that level.  A daily closing of the price above the major resistance at 6.2187 is going to bring back more buyers and the ultimate target for this asset will be the high 11th April 2020. Breaking above the resistance level at 6.4169 will challenge the major resistance at 6.5236. Most of the professional investors are going to eye on that 6.4169 level. A bullish break of that level will confirm the end of the long-term bearish rally in the USDDKK pair.

Bearish scenario

Though the current price action signals in forex suggest an imminent break of the resistance at 6.2187, we still need to consider the bearish outcome as the long-term bearish trend is still intact. Formation of bearish price action signal at the major resistance at 6.2187 level will refuel the bears and eventually the price is most likely to drop to the minor support level at 6.1069. We might see some attempt from the bulls to control the downfall in the USDDKK pair at that level but ultimately the attempt is most likely to be short-lived. Break of that support level will ultimately challenge the low of 6th January 2020. If the price breaks below the support at 6.0255, we might see another extended drop in the USDDKK pair.

Fundamental factors

The U.S dollar index has started its bullish rally on 25th February 2020. The strength in the U.S dollar index reflects strong performance in the U.S economy. However, the cautious investors are waiting in the sideline for the NFP data scheduled to release in the upcoming Friday. If the real data manages to beat the expectations, the USDDKK bulls should easily gain strong bullish momentum. On the contrary, we don’t have such high-impact news releases in the Danish economy.

Lower time frame analysis

If you evaluate the price pattern for the USDDKK asset in the lower time frame, we can see that the asset has already created a new high at 6.2011 in the 4-hour chart. Before we see an extended rally in the 4-hour chart, a minor bearish correction in the price is expected. As long as the low of 25th February 2020 holds, it is better to look for short-term buying opportunities. On the contrary, a break below the support level at 6.0750 opens the door to challenge the critical support level at 6.0235.

Considering the current position in the USDDKK pair, it is not safe to take the long trade since the price trading too close to the resistance level. On the contrary, shorting the asset in the absence of a bearish reversal signal is going to be an immature act. So, it is better to wait for the minor bearish correction in the price so that we can take the long trade with a decent risk to reward ratio. However, if the support level at 6.0235 breaks, we should never look for any short trade signals even in the lower time frame.

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