Price Action Suggests Dollar Upside Break

NEW YORK (TheStreet) -- The European session started off with a sideways channel, extended from the late U.S. session, with the dollar unable to move the market too far one way or the other.

The sentiment appears to be somehow neutral right now, but the price action of the major pairs suggests that an upside break is likely to follow. The euro, the pound and the Australian dollar are trading near the resistance area of the overnight channels, while the Canadian dollar and the Swiss franc are trading near the support area of the same channels. Further bullishness comes from the S&P 500 futures, where a test below the 1020 area -- the support of the last few days of trading -- had been rejected.

However, not everything is pink in the financial market. China announced Wednesday it plans to curb demand because of a huge rise in economic slack. This has added some weight onto crude oil's weak knees, forcing it to test the $71 area. A potential break below this level may strengthen the dollar, but this is not likely to happen as long as S&P futures are holding in the green. Moreover, even if it breaks lower, crude oil will soon hit a support trendline that holds the pair since July 13.

Looking ahead, the economic calendar is loaded with important news reports coming from both sides of the Atlantic, but by a huge margin the U.S. gross domestic product numbers will be Thursday's s main focus point. On an average day, a better-than-expected report would trigger dollar selling across the market. However, the pattern of trading had been pretty strange lately, with the market spiking during the news report, and then a selloff ensuing, even though the numbers may have beaten estimates. As a general rule, tenured forex traders will be looking for the momentum of the GDP report, rather than trading the moment of the release.

-- Written by LFB-Forex in Scottsdale, Ariz.