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Dollar Tests a Key Resistance Level as EUR/USD Sits on Support

Price Action, Swing & Short Term Trade Setups

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Talking Points:

- The U.S. Dollar has ran-up to test a key resistance level at 101.53; and a sustained-break above this level could signal the return of the bullish-Dollar theme.

- USD-strength is showing vividly in EUR/USD as the pair tests a key support level; and USD/JPY is still congesting on a longer-term basis with continued support at a key region.

- If you’re looking for trading ideas, check out our Trading Guides. And if you’re looking for ideas that are more short-term in nature, please check out our Speculative Sentiment Index (SSI) Indicator.

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USD Comeback: The U.S. Dollar has started this week off on a rather bullish foot, and this comes after the currency posed a hard reversal on Wednesday of last week. As we opened last week with Fed Chair Janet Yellen’s twice-annual Humphrey-Hawkins testimony on the calendar, the potential for a return of the bullish U.S. Dollar up-trend was very much alive. After a near-historic run after the Presidential Election in November, the Greenback spent most of January heading-lower as traders realized gains and tightened-up positions. But as we came-in to February, support began to show and bulls began to return; and as we opened last week with Fed Chair Janet Yellen’s two-day Humphrey-Hawkins testimony on the calendar, the opportunity for that trend to extend was very much there.

Day one of that testimony on Tuesday further contributed to the Dollar’s gains; but it was the strong inflation print on Wednesday morning that really excited matters, as the Dollar ran-up to a key resistance level at 101.53. This is the 50% retracement of the January retracement; and should price action be able to show a sustained break-above this level, the prospect of the bullish up-trend returning would be quite a bit more attractive.

But that inflation-fueled run-higher on Wednesday morning was short-lived: Just as Chair Yellen began speaking on day two of her Humphrey-Hawkins testimony, the Dollar began to sell-off, and continued to do so into Thursday. Support finally showed at mid-day on Thursday, and since then bulls have returned to drive prices back up to the level where we reversed on Wednesday: This is the 50% retracement of the bearish January move, and should price action be able to pose a sustained break-above this level, continuation prospects could seem considerably more-likely.

Dollar Tests a Key Resistance Level as EUR/USD Sits on Support

Chart prepared by James Stanley

USD/JPY remains subdued

While the U.S. Dollar is testing resistance from last week with legitimate top-side continuation prospects, price action in USD/JPY is quite a bit more subdued at the moment. Last week’s high on Wednesday in USD/JPY was unable to break-above the prior swing-high at the end of January (DXY was well-above that point using similar observations). And on this most recent run, the Dollar has already ran-back to resistance while USD/JPY is still well-below those prior highs.

So, while the longer-term trend would still remain as bullish given continued support above this widely-watched region, the prospect of timing may be a bit more elusive as buyers haven’t appeared overly-excited about trend continuation, at least just yet. This could make the possibility of another support-check later in the week extremely exciting for longer-term bullish accumulation.

Dollar Tests a Key Resistance Level as EUR/USD Sits on Support

Chart prepared by James Stanley

EUR/USD at Support

One area where that recent up-tick in USD-strength has shown up rather prominently has been against the Euro. The January pull-back in the strong-Dollar theme ran EUR/USD higher by almost 500 pips. But as strength returned in February, EUR/USD began to fall. The reversal on Wednesday of last week took place at the 61.8% Fibonacci retracement of that January move at 1.0527; and with Dollar strength showing back-up rather prominently over the last couple of trading days, EUR/USD has returned right back to this support level. A bit lower at 1.0500 we have a major psychological level and from there down to the 1.0340 13-year low we have a plethora of prior support swings.

Should support hold above 1.0500 in the early portion of this week, this setup could potential become an attractive reversal candidate given EUR/USD’s struggles to elicit sellers below 1.0500.

Dollar Tests a Key Resistance Level as EUR/USD Sits on Support

Chart prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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DXY Aims for Monthly Highs as Fed March Hike Odds Increase

News events, market reactions, and macro trends.

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Talking Points:

- Fed's Mester, Harker both come out to leave door open for a March rate hike.

- Crude Oil prices turn higher as OPEC aims for more supply cuts; implications for USD/CAD.

- Keep an eye on short-term positioning shifts as traders turn against the US Dollar with the DailyFX Speculative Sentiment Index.

With the US economy at "full employment" and signs that inflation pressures are pushing through the Fed’s +2.0% medium-term target, Federal Reserve officials have publicly left the door open for a rate move in March. At least that's the message from the Fed's Mester and Harker, both of whom have come out over the past day and stated as such. While these two Fed presidents tend to lean hawkish, the growing chorus of policymakers suggesting that a rate hike could come next month has been a strong enough clue for markets to drive the US Dollar higher.

Over the past two weeks, Fed rate hike odds (per Fed funds futures contracts) have ebbed and flowed, but they are starting to trend higher: after hitting a low around 24% in early-February, the probability has increased to 36% today. While far below our 'line in the sand' of 60% - the Fed hasn't raised rates over the past 20-years unless traders have priced in at least a 60% probability in the front month contract - the shift in tone among US policymakers is something to be taken seriously.

Chart 1: GBP/USD 4-hour Timeframe (January 20 to February 21, 2017)

DXY Aims for Monthly Highs as Fed March Hike Odds Increase

Concurrently, with short-term US yields pushing higher, and credit risk in Europe increasing thanks to Dutch and French elections on the horizon, EUR/USD finds itself within a stone's throw of the monthly lows; GBP/USD's symmetrical triangle may be ready to crack to the downside; and AUD/USD is threatening to break its daily 13-EMA, which it hasn't closed below since January 4. Add in USD/CAD's attempt to base and trigger its bullish falling wedge reversal, and you have a set of technical factors that all point to the US Dollar (via DXY Index) gearing up for a test of its monthly high in the coming sessions.

Chart 2: AUD/USD Daily Timeframe (August 2016 to February 2017)

DXY Aims for Monthly Highs as Fed March Hike Odds Increase

See the above video for technical considerations in DXY Index, AUD/USD, EUR/USD, GBP/USD, NZD/USD, USD/CAD, and Crude Oil.

Webinar Schedule for Week of February 19 to 24, 2017

Monday, 7:30 EST/12:30 GMT: FX Week Ahead: Strategy for Major Event Risk

Wednesday, 6:00 EST/11:00 GMT: Trading Q&A

Thursday, 7:30 EST/12:30 GMT: Central Bank Weekly

Read more: FX Markets Wait on UK GDP, Euro-Zone Inflation, and FOMC Minutes

--- Written by Christopher Vecchio, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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US Dollar May Rise on Fed-Speak, Pound at Risk on Carney Comments

Fundamental analysis, economic and market themes

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Talking Points:

  • US Dollar gains as markets look ahead to hawkish Fed-speak
  • New Zealand Dollar sinks on ebbing demand for local assets
  • Euro may ignore PMIs, Pound may fall on Carney comments

The US Dollar outperformed in overnight trade as markets looked on to a busy week of Fed commentary that may boost near-term rate hike speculation. Recent remarks from central bank officials including Chair Yellen have struck a hawkish tone. Neel Kashkari, Patrick Harker and John Williams – Presidents of the central bank’s Minneapolis, Philadelphia and San Francisco branches – are due to speak today.

The New Zealand Dollar proved weakest on the day thus far as the island nation’s benchmark government bonds declined, pointing to ebbing demand for assets denominated in terms of the local currency. A discrete, catalyst for the move is not readily apparent. The announcement of a second “social bond”, increasing the government’s liabilities, and an expected price drop at an upcoming dairy auction are possible culprits.

The preliminary set February’s Eurozone PMI figures is unlikely to inspire a strong reaction from the Euro considering the outcomes’ limited implications for near-term ECB policy trends. Comments from BOE Governor Mark Carney may weigh on the British Pound if the central bank chief reiterates policymakers’ dovish disposition amid lingering Brexit-related worries despite improving UK economic news-flow.

Where is the US Dollar going this week? Join a Q&A webinar and ask a DailyFX analyst!

Asia Session

US Dollar May Rise on Fed-Speak, Pound at Risk on Carney Comments

European Session

US Dollar May Rise on Fed-Speak, Pound at Risk on Carney Comments

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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