US Dollar Talking Points:
– The US Dollar set fresh 22-month-highs this week, rallying above resistance in an ascending triangle that’s been building for the past six months. The breakout ran aggressively through yesterday’s trade, at which point resistance began to build around the 98.32, and this same level has held the highs again this morning, leading to pullback potential as markets trade into next week.
– This breakout in the US Dollar showed prominently with bearish breakouts in both EUR/USD and GBP/USD. Commodity currency pairs such as AUD/USD and USD/CAD may be more interesting for reversal scenarios in the US Dollar, as each market is grasping on to an element of support (AUD/USD) or resistance (USD/CAD) that can remain of interest for USD-reversal strategies.
– DailyFX Forecasts are published on a variety of currencies such as the US Dollar or the Euroand are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.
US Dollar Breaks Out to Fresh Highs, EUR/USD and GBP/USD to Fresh Lows
The US Dollar has set a fresh 22-month high, making it an eventful week across FX markets despite a relative dearth of high-impact macro-economic data. A couple of themes that have been building for the past six months finally moved towards some element of resolution, as the US Dollar broke out to fresh highs and EUR/USD broke-down to 22-month lows. Curiously, there wasn’t a direct driver pushing the move, and this brings questions around continuation potential as next week’s loaded economic calendar awaits.
The US Dollar is holding resistance at fresh yearly highs and yesterday’s Daily candle printed as a doji/spinning top, indicative of indecision. When coupled with a really strong move ahead of that print, the potential for pullbacks begins to show, driven by the prospect of buying pressure stalling around levels that haven’t been traded at in almost two years.
US Dollar Daily Price Chart
Going into next week, the big question is whether USD buyers step-in to extend the move, forcing a bullish trend scenario to follow this week’s breakout. And as looked at in yesterday’s webinar, there are a couple of nearby areas of interest to follow for such a theme: The closest runs from Fibonacci levels at 97.86 and 97.94. A bit-lower, that prior area of resistance remains around the 97.70-handle, and for support plays, traders may look as low as 97.50, creating a zone of potential for buyers to show-up to continue the bullish move.
US Dollar Two-Hour Price Chart
USD Strength – Trade it, or Fade it
I had looked into this theme coming into this week, even asking the question in this week’s FX Setups whether this would be the week that US Dollar bulls finally broke-out. For that theme, I was looking at bearish breakout potential in both EUR/USD and GBP/USD. But, for USD-weakness, I had also incorporated commodity currency pairs of AUD/USD and USD/CAD, and going into next week – those themes may remain of interest.
In the areas where USD-weakness has not worked, the bar is raised for next week. AUD/USD broke-down to range-support, digging in around the .7000 handle. For traders looking at fading USD-strength for next week, positing that this USD breakout will ultimately end up as a failure, range continuation scenarios can remain attractive in AUD/USD, in essence looking for some element of buyer defense around the .7000 big figure.
AUD/USD Four-Hour Price Chart
USD/CAD Digs into Resistance at 1.3500
In USD/CAD, the pair broke-out to fresh three-month-highs on the heels of this week’s Bank of Canada rate decision. Prices soon ran into the 1.3500 psychological level, and similar to USD-looked at above, put in an item of indecision with yesterday’s Daily bar. This can also keep the door open for reversal scenarios, and at the very least the risk management of the situation could be somewhat clear, as traders have today’s highs holding around a key spot of resistance.
USD/CAD Eight-Hour Price Chart
USD-Strength on Full Display in EUR/USD, GBP/USD
Meanwhile, that USD-breakout has brought fresh bearish breakouts to both EUR/USD and GBP/USD this week. EUR/USD broke below a range formation as Cable sunk below a descending triangle, and given the print of fresh lows, this can keep the door open for continuation scenarios next week, particularly for those looking to play bullish themes in the US Dollar.
In EUR/USD, that area of prior support that had held the lows for almost six full months now becomes resistance potential. This runs from Fibonacci levels at 1.1187-1.1212, and re-tests there can open the door for bearish trend strategies next week.
EUR/USD Eight-Hour Price Chart
GBP/USD Holding Lows Around Confluent Support
GBP/USD also broke below a big support zone this week, but this was an area that had held the lows for the prior two months as opposed to the previous six. This formation was looked at last week as a descending triangle had built-in GBP/USD near-term price action, with support showing from 1.2960-1.3000 and resistance coming from a descending trend-line. The next ‘big’ area of support on the chart was a confluent zone of Fibonacci levels around the 1.2900 handle, and that has since come in as support over the previous two trading days, leading to pullback potential. That prior zone of support now becomes potential resistance, and at this point, that zone is getting closer to confluence with the bearish trend-line taken off of the late-March swing-highs.
GBP/USD Eight-Hour Price Chart
Chart prepared by James Stanley
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.
Forex Trading Resources
DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.
If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.
— Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX