US Dollar Price Action Setups: EUR/USD, GBP/USD, USD/CAD, USD/JPY


US Dollar Talking Points:

  • US Dollar strength has come rushing back and DXY is testing a key spot of resistance at the 19-year highs that were established last month.
  • EUR/USD is holding below parity after yesterday’s print of fresh 19-year lows. GBP/USD is grasping for support at the psychological level of 1.1750. USD/CAD is testing a key zone of resistance, making it a spot of interest for those looking to fade the USD run. USD/JPY is of interest, but there may be more attractive Yen-pairs depending on the trader’s stance regarding risk on/off. I talked about that earlier this morning in the JPY Technical Forecast.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

The US Dollar is holding near a key spot of resistance today. This follows a massive topside run that developed in the currency last week. It all started with a bull flag formation that had setup ahead of last week’s open, which I talked about in the technical forecast. That breakout hit quickly, with USD finding resistance at a familiar level, setting up for another breakout last Tuesday. The next breakout hit on Thursday and prices continued to rally through last week’s close, and I took another look at the matter on Friday to set up ahead of this week.

At this point, price has stalled right at that prior high from July. That high, notably, printed right after the release of CPI data that showed US headline inflation at 9.1%. But, also a key component of the move was EUR/USD perching below and eventually finding some support around parity.

At this point, from the daily chart, there’s remaining breakout potential and given this week’s economic calendar, the potential for such does seem to exist. But, this would also likely need to be accompanied with continued downside in EUR/USD. PCE data, the Fed’s preferred inflation gauge, is released on Friday morning and Chair Powell has a speech at Jackson Hole later in the afternoon.

From the daily chart below, we can see the v-shaped reversal that’s shown in the currency since support built at the beginning of this month. Yesterday saw a quick pullback develop after the release of PMI numbers, but that pullback was quickly bought and price has pushed right back up for resistance, which keeps the door open for further breakout potential.

If prices do fail to breakout, however, there’s a couple spots of higher-low support potential. And if those do not hold there’s building potential on the other side with a double top formation. With support showing around the 105 psychological level, there’s quite a bit of distance from the top to the neckline, so if that fills, the move could be large. But, this would likely need some form of ‘game changing’ announcement at Jackson Hole to create such change. And – if resistance gets taken-out, the double top is nullified anyways.

US Dollar Daily Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

USD Shorter-Term

Going down to the four-hour chart highlights a trend that’s come on very, very fast. There’s been a minimum of pullback until that high printed yesterday, and even then, the pullback was brief as buyers jumped right back on the bid.

Normally, such momentum is difficult to remain. This is why markets often display price action trends in a ‘two steps forward, one step back’ type of formation. But, when its more of ‘four steps forward, one pinky toe back,’ that trend starts to feel overbought on a short-term basis. But, again, there’s no evidence yet that it’s ready to turn.

So, at this point, there’s remaining breakout potential on prints of fresh highs. For support, there’s a couple of key spots of prior resistance that haven’t yet shown much for support, and I’m tracking that around the 107.48 area after which the 106.93 area comes back into the equation.

US Dollar Four-Hour Price Chart

US Dollar four hour chart

Chart prepared by James Stanley; USD, DXY on Tradingview

EUR/USD Peers Over the Ledge

What’s helped the USD move to run has been another breakdown in EUR/USD, following a clean test of resistance at prior support two weeks ago around the most recent release of CPI.

And that last run around parity might have some information that could remain relevant for this run. While prices dipped-below parity in July, setting a low at .9950, they couldn’t stay below for long. They pushed back up to create a range that showed via a rectangle formation, which eventually yielded to a bullish breakout as EUR/USD flexed its muscle to elicit that resistance test at prior support.

This is a major psychological level at work. A level such as parity often takes time to break because markets have to become accustomed to this new pricing structure. In 2002, when the pair was grinding through parity on the upside – that move took six months to fully take-hold. And then once EUR/USD held above in early-2003, it was off to the races.

More recent, parity is back in play on the other side. The test in July led to a +300 pip pullback, showing resistance at prior support. Since that test, however, EUR/USD has been in the midst of a strong one-sided run and price is oversold from a number of vantage points. And while oversold/overbought is not a timing indicator – it does highlight the context and how a much deeper run may face some resistance given how crowded the short side of the trade has been.

EUR/USD Daily Price Chart

eurusd daily chart

Chart prepared by James Stanley; EURUSD on Tradingview

EUR/USD Shorter-Term

At this point we can see some of the effect of psychological levels on near-term price action.

The breakdown in EUR/USD ran down to another psychological level albeit a less major level at .9900. Short-term resistance was taken from the July low at .9950, which set as resistance yesterday before prices broke-out for another test of parity. Sellers pounced, and drove back down towards .9900.

But, at this point, selling pressure appears to be slowing, which keeps the door open for pullbacks.

EUR/USD Two-Hour Price Chart

eurusd two hour chart

Chart prepared by James Stanley; EURUSD on Tradingview

GBP/USD

Cable has absolutely broken-down over the past week and I had highlighted this move on Thursday, just before it started to take-hold. It was a simple price action deduction given wick placement that highlighted that scenario and it’s continued through this week’s open.

While price did set a fresh low yesterday, the support zone from July continues to carry some weight, as a snap back move is currently trying to hold support around the July low, which is confluent with the 1.1750 psychological level.

A hold of support here would mean a short-term higher-high to go along with a higher-low, which could keep the door open for recovery themes in the index. Short-term resistance can be sought in the 1.1878-1.1889 zone.

GBP/USD Four-Hour Chart

gbpusd four hour chart

Chart prepared by James Stanley; GBPUSD on Tradingview

USD/CAD

USD/CAD remains interesting, particularly from a longer-term point-of-view.

If we track the recent bullish trend in the US Dollar, USD/CAD hasn’t been able to hold up. As a matter of fact, from the weekly chart, the case can even be made that USD/CAD remains in a bearish state despite the massive topside run in the USD over the past year.

DXY v/s USD/CAD Weekly Chart

dxy vs usdcad weekly chart

Chart prepared by James Stanley;

DXY v/s USD/CAD: What’s the Difference

The big difference between these two markets has been the addition of CAD-strength. As Euro, GBP and JPY have all remained extremely weak against the Greenback, CAD has held its own a bit better, only retracing 38.2% of the 2020-2021 sell-off.

Along the way, it’s built a bear flag formation.

And, notably, the zone of 1.3000-1.3025 has continued to hold resistance for the past few months. So, for those that are looking to fade USD-strength, USD/CAD can remain of interest. And there’s also the additional impact of oil prices, which could be another positive for CAD as WTI has recently broken-out of a falling wedge formation, which points to the possibility of a deeper bullish reversal.

USD/CAD Weekly Chart

usdcad weekly chart

Chart prepared by James Stanley; USDCAD on Tradingview

USD/JPY

USD/JPY has put in another sharp move, breaking out from an ascending triangle that had set up last week.

Deductively, however, there’s an item of note, and that’s taken from the fact that so far USD/JPY has set a lower-high while USD has pushed up for a test of its own high watermark. I talked about that a little earlier today in JPY Technical Setups, and there may be more amenable pastures for Yen-trends elsewhere.

AUD/JPY, EUR/JPY and GBP/JPY are all showing forms of consolidation via symmetrical triangles. If looking for Yen-strength, which would likely need lower US yields, EUR/JPY is of interest and possibly even GBP/JPY. If, however, looking for Yen-weakness, AUD/JPY is set up for longer-term breakout potential.

In USD/JPY, price has held resistance at a big spot on the chart around 137.50. This can keep the door open for breakout potential from the Monday high; but it’s the support zone running from 135.00-135.57 that remains of interest, as that was resistance in the triangle that hasn’t yet been tested as higher-low support.

USD/JPY Four-Hour Chart

usdjpy four hour chart

Chart prepared by James Stanley; USDJPY on Tradingview

— Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX





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