US Dollar Talking Points:
US Dollar Holds Support After Q4 Pullback
It’s been a pullback type of start to Q4 so far for the US Dollar. The currency came into the fourth quarter with strength, setting a fresh two-year-high last Tuesday. But another disappointing manufacturing ISM report led into a pullback and that hastened on Thursday with a miss on the services portion of the ISM report. Friday’s Non-Farm Payrolls did little to help, as well, as a 0% read in Average Hourly Earnings highlights lagging wage growth; and at this point, buyers remain on the sidelines for the US currency as a number of themes remain in the headlines. Of issue is the October rate decision at the Fed. The bank hasn’t yet talked up another rate cut but markets are highly-expecting one, with a current probability of 78.6% for another 25 basis points of softening when the Fed meets in a few weeks.
In the US Dollar, prices are clinging to support that came into play last Thursday after the disappointing services ISM report. This rings in around a prior area of resistance at around 98.75 in DXY.
US Dollar Two-Hour Price Chart
Taking a step back to look at the bigger-picture, and the big question is whether a larger reversal is waiting in the wings. Prices came into Q4 in the rising wedge formation that’s built through 2019 price action. And given the continued show of trepidation from bulls at-or-around highs it makes sense as to why this formation has built. Such a pattern will often be approached for bearish reversal potential and this is something that can remain of interest in the coming weeks as FOMC policy comes further in the spotlight. This was the approach looked at in the Q4 technical forecast on the US Dollar.
US Dollar Weekly Price Chart
EUR/USD: Key to US Dollar Dynamics
One of the primary push points of the above scenario is what takes place in EUR/USD and given the 57.6% weighting in DXY of EUR/USD, that makes sense. EUR/USD prices have been stubborn so far this year, presenting a series of bear traps. The pair did finally break down to a fresh two-year-low last week as USD strength was showing prominently into the Q4 open; but EUR/USD price action has since pulled back to resistance at the 1.1000 handle and that’s held for the past few days.
For traders that do want to look for USD-strength, this remains a compelling setup.
EUR/USD Daily Price Chart
AUD/USD Breakdown Potential at Decade Lows
Another area that could remain interesting for USD-strength is AUD/USD. I’ve been following this side of the pair for a little while now, initially riding the down-trend into August trade and then getting back on the short-side in mid-September. Since then, prices have dipped down to a key zone of support but, as yet, haven’t broken.
That support comes in at fresh decade lows that were set in early-August just below the .6700 handle. There have now been four different visits to this zone but, as yet, sellers haven’t been able to re-take control. If USD-strength does come back into play, that theme becomes one of the more interesting around major currency pairs.
AUD/USD Daily Price Chart
GBP/USD: British Pound Tapped-Lower as Brexit Remains a Mystery
We’re in October and later this month is supposed to finally bring Brexit. But it remains as murky as ever and another negative development earlier this morning has pushed the British Pound-lower. But, prices remain above the prior swing-low that was set around the 61.8% retracement of last month’s bullish move, and this can keep the door open for topside swing potential. This can remain interesting for USD-bears should this support zone hold through today’s trade.
GBP/USD Four-Hour Price Chart
USD/CAD: Retains Bearish Potential Sub 1.3385
Also of interest for USD-weakness is USD/CAD. The pair jumped-higher to begin Q4 but, as yet hasn’t been able to re-test the key zone of resistance that came into play in early-September, leading to a sizable reversal down to the 1.3132 Fibonacci level. The continued posturing from buyers, showing short-term support around prior resistance without being able to punch up to fresh highs keeps the door open for reversal potential so long as the 1.3361-1.3385 zone remains unfettered.
USD/CAD Daily Price Chart
To read more:
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— Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX