US Dollar Talking Points:
Last week saw the steady build of support off of the lows as risk markets started to show the initial stages of turning the corner after the earlier-month sell-off. So far, Q4 has been unkind to equities and global indices are continuing to highlight various forms of pressure. As discussed in this week’s technical forecast, that geographic dispersion could keep bearish themes prominent in European and UK stocks; while bullish plays could best be directed elsewhere, around stock markets that hadn’t yet shown as much pain such as the Dow Jones or the S&P.
Talking Points:
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US Dollar Puts in Another Failed Test at 96.04: Will the Fifth Time be the Charm?
Last Thursday, I looked at the US Dollar as the currency was nearing a resistance test at the 96.04 level, which is the same price that had helped to hold the highs over two earlier tests in October. That price has since given two additional resistance tests, and the corresponding move-lower has grown more shallow as sellers appear to be losing a bit of motivation. So, while the Dollar has largely been range-bound so far in Q4, there could be a workable case for a bullish bias for those expecting a topside break of 96.04. As said in the webinar, the objective would be to pick appropriate spots for the US Dollar. If looking for strength on breakout themes, the short side of GBP/USD could be interesting. If looking for weakness on a hold of resistance, the topside of NZD/USD could remain interesting.
US Dollar Four-Hour Price Chart
Chart prepared by James Stanley
EUR/USD: Caution as Prices Remain Pegged to Support
Last Thursday, EUR/USD was a focus chart as prices had returned to a key swath of support on the charts around the 1.1500 level. At the time, I called it a bear trap, and the backdrop for bearish strategies looked too clean for comfort. That led into a bullish move on Friday that set a fresh lower-high at 1.1550; but almost a week later that support remains unfettered above the October low of 1.1429.
The one area of attraction here might be short-side breakouts upon prints to fresh lows. Given the pensive nature of the themes behind the Euro at the moment, with the continued stand-off between Brussels and Rome remaining prominently in the headlines, and there could be ample motivation for a break-lower. The only problem is that, even with the negativity in the headlines, it still hasn’t happened yet, and traders should rightfully question the bearish stance given the lack of accompanying price action.
EUR/USD Four-Hour Price Chart
Chart prepared by James Stanley
GBP/USD: Resistance at Prior Support After Symmetrical Wedge Break
This was looked into yesterday in the article entitled, GBP/USD Drops Through 1.3000 to Find Support at 88.6% October Fib. This move is being driven by continued volatility in British politics, and that appears set to continue tomorrow as Theresa May is rumored to be appearing in a closed-door session in-front of the 1922 committee which could, potentially, bring upon a no-confidence vote. Such a move would complicate Brexit dynamics even more than what we have now, and there would likely be building fears around Hard-Brexit or No-Deal Brexit options, and this would likely be negative for the British Pound.
GBP/USD has broken below a trend-line that connects the August and October swing-lows. And as discussed in yesterday’s article, resistance potential at prior support keeps the door open for short-side stances.
Mentioned in the webinar – for those that want to take a non-directional stance on USD, the prospect of USD strength via short GBP/USD could be meshed with the support zone looked at above in the Euro, allowing for short-USD exposure via long EUR/USD.
GBP/USD Four-Hour Price Chart
Chart prepared by James Stanley
USD/JPY Grasps on to Support as Risk Trade Faces Fire
This was in focus a couple of weeks ago as the selling in stocks was really getting started, but I had noted the similarity of the move in USD/JPY as risk aversion was being echoed in the pair. As selling in stocks heated up, so did Yen-strength, and this was something that lasted well into last week.
But – the pair had started to recover as equities tried to find footing, and this had opened the door for a return of strength in USD/JPY; which appeared to be very correlated to the return of the risk trade.
That theme has come into question this week as USD/JPY has pulled right back to key support at 111.93. This chart itself is fairly unattractive; but the themes herein could be extrapolated elsewhere, looking for Yen-strength on the basis of greater risk aversion or Yen-weakness on the back of ‘everything is going to be ok’ themes.
USD/JPY Four-Hour Price Chart
Chart prepared by James Stanley
NZD/USD: Potential for Short-USD Themes
This was part of the FX Setups for the Week of October 22nd, as NZD/USD has continued to put in the makings of bullish price action over the past few weeks, including a move back-above the key psychological level of .6500. This could be attractive for themes of USD weakness, as the pair has continued to put in higher-highs and higher-lows over the past two weeks, even when the US Dollar was rather strong following last week’s support test at 95.00.
NZD/USD Four-Hour Price Chart: Higher-Highs, Higher-Lows Past Two Weeks
Chart prepared by James Stanley
GBP/JPY Brings Bearish Potential For Themes of Risk Aversion
This one was also included in yesterday’s FX Setups of the Week for October 22nd, 2018, and this involves looking for a continuation of the risk aversion themes that have started to show across FX, led by Yen strength. After an abnormally range-bound month of price action, GBP/JPY is seeing prices expand as lower-lows and lower-highs have started to come-in. This could keep the door open for short-side, particularly under drives or themes of risk aversion.
GBP/JPY Four-Hour Price Chart: Prices, Volatility Expanding as Impasse Begins to Give Way
Chart prepared by James Stanley
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q4 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
