US Dollar Price Outlook Talking Points:
The Q4 bearish turn in the US Dollar continues to show potential as the US currency pushed down to a fresh low last Friday. This comes in stark contrast to the theme of strength that held around the currency into the Q3 close. But a raft of bad data out of the US combined with some ire from President Trump’s Twitter account helped to evoke a pullback two weeks ago and that theme remains mid-month.
At this point, the US Dollar is finding support in a key zone on the chart. This was an area of prices that helped to mark the highs in April and May and then again in August. In late-September, buyers came into offer support off of this same price zone and a recurrent test is currently taking place.
US Dollar Eight-Hour Price Chart
US Dollar: Where the Rubber Meets the Road
Will US Dollar bulls come back to bid the currency higher after a two-week pullback to begin Q4? Or will sellers continue to push? The longer-term backdrop here may be more attractive for weakness given the way the currency has so far performed in 2019. Buyers have been far more hesitant at highs or around resistance while remaining fairly active around support or at lows. This has led to the build of a rising wedge formation which will often be approached for bearish reversals, and this helped to set the backdrop for a bearish forecast for Q4 in the US Dollar.
US Dollar Daily Price Chart: Bearish Longer-Term Potential
This sets up both bullish and bearish scenarios around the US Dollar with the current backdrop. This can be voiced more attractively through pairings that can be more conducive to each respective theme, and below that’s looked at through various major currency pairs.
US Dollar Daily Price Chart: Bullish Backdrop, Support at Trendline, Prior Resistance
EUR/USD: Time for Bulls to Show Their Hands
EUR/USD has set up a fairly stubborn backdrop for bears so far through 2019. While there’s clear monetary divergence between the Fed and the ECB, a significant amount of noise remains around each. Last week saw EUR/USD with a surprising move of strength, surging up to fresh near-term-highs, taking-out a confluent zone of resistance that had constrained the advance in the first week of this month. That level around 1.1000 was taken-out last Thursday and Friday saw a greater push from bulls. But so far this week a different tone has developed and prices have pulled back to that prior zone of resistance.
This presents a fairly interesting case for bullish continuation strategies as prices push closer to support potential around that prior price of resistance.
EUR/USD Eight-Hour Price Chart
GBP/USD: Cable Breakout Finds Fibonacci Resistance
Perhaps more interesting on the short-side of the US Dollar is GBP/USD. I’ve been following the pair for similar drives over the past couple of months. Through the summer bears remained firmly in-control, driving down to fresh lows and, in early-September, coming perilously close to that 2016 ‘flash crash’ swing low at 1.1950. But a longer-term trend-line helped to cauterize support and September brought a surprising bullish breakout into the pair as GBP/USD inclined by as much as 500 pips during the month.
GBP/USD Monthly Price Chart
The second-half of September saw buyers pullback while sellers took a swing off of the 1.2500 level; and prices pulled back to a key zone of shorter-term support around the 61.8% retracement of the early-September advance. I had looked at this zone over a couple of webinars late last month and, so far in October, that zone has helped to hold the lows as buyers have come back into the fray, helped of course by some friendlier headlines around the ongoing Brexit drama engulfing the UK.
Current resistance is showing at 1.2705, which is the 14.4% Fibonacci retracement of the 2014-2016 major move. That prior zone of resistance from 1.2500-1.2523 has already been tested for support yesterday and buyers have come back for another resistance test. This leaves a couple of different options for bullish continuation strategies: Either looking to support at the September swing-high around 1.2582 or, alternatively, looking to topside breakout potential from the 1.2705 high into the 1.2750 psychological level.
GBP/USD Four-Hour Price Chart
USD/JPY for USD-Strength: Breakout Potential
I looked into this one in last week’s webinar. Even with a weak US Dollar in the first half of October, USD/JPY showed bullish tendencies, owed to the additional Yen-weakness overshadowing the US Dollar’s own pullback. This strength in USD/JPY brought upon by an even weaker Yen has helped the pair to push up to a fresh two-month-high at a key zone of resistance that runs from 108.47-108.70 which ahs so far helped to hold bulls at bay.
This is one of the more attractive long-USD setups at the moment given that Yen-weakness combined with the fact that buyers have been getting increasingly aggressive, highlighted by the higher-low support showing over the past week around 108.00.
USD/JPY Four-Hour Price Chart
AUD/USD: Decade Lows Lurk Below
Also of interest on the long-side of the US Dollar is AUD/USD, where a bigger-picture theme continues to brew. The pair started the year with a flash crash, setting a fresh low around the .6750 level. Sellers weren’t done, however, as Jan-Feb retracement soon ran into resistance and sellers have been making a concerted effort at lower-lows and lower-highs ever since.
Early-August finally saw that .6750 flash crash swing low come into the equation and bears were able to push all the way below the .6700 level. But, that’s where the proverbial music stopped as multiple tests to drive-lower have been thwarted since.
That push of USD-weakness in early-Q4 trade has allowed for a bit of relief in this theme as AUD/USD perked up to the .6800 level; but as support has begun to set in the US Dollar AUD/USD sellers have come back into the fray, keeping the door open for another visit down to the .6700 neighborhood. This can keep the focus on the short-side of the pair as one of the more attractive ways to work with USD-strength scenarios in the near-term.
AUD/USD Eight-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