US Dollar Price Action Setups in EUR/USD, GBP/USD and USD/JPY

US Dollar Price Action Setups in EUR/USD, GBP/USD and USD/JPY


US Dollar Price Action Talking Points:

  • The US Dollar has undergone a stark change-of-pace in near-term price action over the past three trading days as the prior bullish theme has come unwound, largely driven by falling rate expectations around the Federal Reserve.
  • Both Clarida and Powell from the FOMC have alluded to the possibility of looser policy options in the future, and markets have built-in a wide expectation for FOMC rate cuts later this year, helping to drive the US Dollar down to fresh six-week-lows.
  • This week’s remaining economic calendar is loaded: The ECB is on Thursday, NFP and Canadian Jobs data is released on Friday and there’s a plethora of high-impact items between now and then.

US Dollar Dives As US Rate Expectations Continue to Fall

Its been a stark change-of-pace in the US Dollar over the past three trading days. After coming one-tenth of one-percent away from testing the two-year high last Thursday, USD bears have come into the fold to push the currency down to fresh six-week-lows. At the source of the move is falling rate expectations around the US Federal Reserve, and this theme was echoed earlier this morning in a speech from FOMC Chair, Jerome Powell. Our own Christopher Vecchio covered this theme in-depth earlier this morning in the article entitled, US Dollar Range Breakout Would Suggest Major Topping Potential.

Earlier today, Chair Powell alluded to the fact that the Fed was following the past month of pressure in global financial markets; and that the bank wouldn’t hesitate to act accordingly. This comes on the heels of comments from FOMC Vice Chair Richard Clarida just last week discussing something similar, highlighting a growing trend amongst FOMC voters looking at softer policy options in the United States.

Twitter

Image from Twitter account of DailyFX Analyst, Justin McQueen; a great follow for market-related items.

US Dollar Drops to Fresh Monthly Lows – More to Go?

At this point, the US Dollar is grasping on to support around the May lows at 97.00. This lines up with the 50% retracement of the March-April major move that had previously helped to set support in the middle of last month. So far this line-in-the-sand has helped to arrest the declines, and today’s price action has so far produced a Doji. This is an item of indecision which, after a large move in one direction, can open the door for a bounce in the other. If buyers are able to hold support around the 97.00 level, focus can move towards a re-test of the 97.50 area on the chart, which had helped to set last week’s lows very near the early-April swing-highs. Below current price action, the trend-line making up the support side of the longer-term ascending triangle remains, currently projecting to around the 96.63 area on the chart.

US Dollar Eight-Hour Price Chart

US Dollar Price Chart

Chart prepared by James Stanley

EURUSD Grinds at Resistance at Six-Week-Highs

This Thursday brings what’s expected to be a widely-watched ECB rate decision, and there are few expectations for anything other than a dovish European Central Bank. The fundamental theme around the Euro was discussed by our own Dmitri Zabelin ahead of this week’s open in the article entitled, Euro Nervously Eyes ECB Rate Decision, Turmoil in Italy, Trade Wars. The big question at this point is how the currency might respond, as a dovish ECB isn’t necessarily anything new; while the similar theme at the Fed has been getting more noticeable of recent to the point where it’s taken-over near-term price action in EURUSD.

Earlier this morning, EURUSD pushed-up to a fresh six-week-high. Resistance has held at a key are on the chart, taken from the May swing-highs around 1.1250-1.1265; but bulls have thus far remained very responsive, leaving the door open for a deeper retracement in the pair towards the April swing-highs around 1.1325 or, perhaps even a test of March highs in the zone that runs from 1.1448-1.1500.

From a longer-term perspective, this may be the type of motive that the pair needs to eventually re-test the 1.1000 handle. As discussed in last Tuesday’s webinar, given the length of the EURUSD sell-off, there are likely a number of trailed stops sitting above these high water-marks on the chart. The pair taking out those stops could re-open the door for longer-term bearish themes as there’d be more money on the sidelines that could hit the offer to push prices down to fresh two-year-lows. But, for now, the retracement theme is on as ECB approaches on Thursday.

EURUSD Eight-Hour Price Chart

eurusd price chart

Chart prepared by James Stanley

GBPUSD Price Finds Trend-Line Support After a Brutal Month of May

Last month was full of headline items out of the UK, and few of those worked to the benefit of GBP-bulls. And, at this point, there isn’t really much more in the realm of clarity in the situation. On the chart, however, the pain has paused, at least for now, after a bullish trend-line came into play around last week’s lows. This can be found by connecting the 2017 low to the Dec 2018 low. This has helped to cauterize support over the last few trading days, assisted in-part by the very visible sell-off in the US Dollar.

GBPUSD Weekly Price Chart

gbpusd weekly price chart

Chart prepared by James Stanley

GBPUSD has now bounced up to resistance at a prior zone of support. This zone runs from 1.2671-1.2721, including the 1.2705 level that functions as the 14.4% retracement of 2014-2016 major move. For traders looking at reversal strategies in the US Dollar or are looking to fade this recent theme of strength in the British Pound, this can present a compelling argument for bearish continuation in GBPUSD, looking for prices to soon re-test support around last week’s lows.

GBPUSD Four-Hour Price Chart

gbpusd price chart

Chart prepared by James Stanley

Yen Strength Continues as Risk Aversion Potential Remains

Stocks are bouncing today, but that’s been more of the exception than the rule of recent as the month of May marked a strong change-of-pace in the risk trade. While risk was most definitely ‘on’ in the first four months of this year, as the page turned into May another theme took over, and that was risk aversion that appeared correlated to the Fed combined with the pressure of trade wars. In FX-land, that theme can be best illustrated with the anti-risk Japanese Yen. The pair came into May clinging to a bullish trend that had lasted since the opening days of January. That trend has come undone as more than 50% has been retraced with current price action grasping onto support around the 108-handle.

I had looked at a prior zone of support as lower-high resistance last week in USDJPY in an area that runs from 109.67-110.00. That area has since come-in to hold this high and prices have pushed down to a fresh four-month low. Another iteration of that strategy may be possible at another key area on the chart. This runs from 108.47-109.69, which was last in-play as support in late-January of this year. A little higher around 109.00 is another point of reference for lower-high resistance potential.

USDJPY Daily Price Chart

usdjpy price chart

Chart prepared by James Stanley

AUDUSD Rallies After Rate Cut – .7000 In Store?

As evidence of just how pronounced this theme of USD-weakness has become, AUDUSD has rallied back above the .7000 marker less than 24 hours after the RBA cut rates to a record low of 125 basis points. This is proof that rate expectations are more important than actual rate moves themselves, and with this move being well priced-in to the Aussie, the growing theme of dovishness around the Federal Reserve has run through that rate cut.

This is a theme that I’ve been looking at over the past couple of weeks, first looking for a build of support around an opening gap in late-May. That soon led to a build of higher-highs and higher-lows, as looked at in last Tuesday’s webinar. And now prices are re-testing the psychologically important .7000 level. But, with prices now re-testing that key level on the chart – will bulls be able to continue to push?

A hold of resistance from .7000 up to the Fibonacci level at .7019 could re-open the door for short-side strategies in the pair for traders that would like to look for a return of USD-strength.

AUDUSD Four-Hour Price Chart

audusd 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 have a section for each major currency, and we also offer a plethora of resources on Gold or 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





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