US Dollar Talking Points:
The US Dollar has inched lower over the past 24 hours as the Q4 pullback in the USD has run into support. That support was looked at in yesterday’s article and was coming from a couple of different areas. The first of which is a bullish trendline that connects June and late-August swing lows. The other element of support emanates from April and May resistance, taken from around 98.33-98.50 in DXY. This zone of prices started to come into play last Friday and remains of issue ahead of the Wednesday US open.
US Dollar Eight-Hour Price Chart
Reading between the lines, sellers were able to tip-toe down to a fresh low last night. But they weren’t able to take control of the matter and prices have pushed right back into this key zone on the chart. This leaves potential for either scenario of strength or weakness and as looked at in yesterday’s webinar, there’s a number of markets that can remain attractive for each.
EUR/USD Bounces From Bear Flag Support
This was looked at in yesterday’s morning article as EUR/USD was pushing below the 1.1000 handle. But, as discussed in the webinar later in the day, there was a ‘nexus’ of confluence at this zone as a bearish trendline that held the highs in the pair from July into last week intersected with the support side of a bear flag formation. That support has since held but buyers have been yet again thwarted at the 1.1050 level on the chart. This can keep the door open for short-term range strategies, looking for a revisit of 1.1000 or, alternatively for Euro bulls, looking for a topside break of this week’s high to re-open the door for continuation of strength within the shorter-term rising channel.
EUR/USD Four-Hour Price Chart
GBP/USD: Cable Bulls Keep it Up
On the short-side of the US Dollar I’ve been following GBP/USD for some time now. A long-term trendline came into play in August and finally helped to stem the bleeding after a brutal summer in the British Pound. September saw bulls re-enter the fray, posing a retracement of more than 500 pips in the first few weeks of last month. And after a pullback to a key area of support, bulls came back into the fray and have largely remained in-charge ever since.
In yesterday’s webinar I looked at pullback potential, focusing in on the zone from 1.2671-1.2705 for higher-low support. That came into play overnight and prices re-ascended towards the 1.2800 level but have again fallen short. This could possibly open the door to short-side swings although given the counter-trend nature of that approach, traders would likely want to focus on the risk side of the coin with nearby stops so that if the bullish breakout does get another wind, losses can be mitigated. On the long side of the pair, prices are overbought and stalling at resistance, so traders would likely want to either a) look for a deeper pullback or b) integrate bullish breakout logic.
GBP/USD Two-Hour Price Chart
USD/JPY Pullback from Fresh Highs
As looked at last week, bullish scenarios in USD/JPY began to get more attractive as the pair pushed up to resistance even as the US Dollar was showing weakness in the first-half of October. This highlights the additional Yen-weakness that’s come into the fray and the pair pushed up to fresh two-month-highs yesterday. The prior zone of resistance that runs from 108.47-108.70 has come back into play and as looked at in yesterday’s webinar, this could be looked to for bullish continuation scenarios in the pair, keeping USD/JPY as one of the more attractive ways to look for USD-strength in the current backdrop.
USD/JPY Four-Hour Price Chart
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.
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— Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX