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- DailyFX Quarterly Forecasts have been updated for Q3, and are available directly from the following link: DailyFX Trading Guides, Q3 Forecasts.

- For trading ideas, please check out our Trading Guides. And if you’re looking for something more interactive in nature, please check out our DailyFX Live webinars.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

Q3 Open Brings Deeper Dollar Pullback – But Can it Continue?

It’s been an interesting start to the second half of 2018 so far, as the US Dollar continues to give back gains from the Q2 rally, and this brings more questions around the sustainability of that bullish up-trend. As we move deeper into Q3, a bit of weekend risk exists around the British Pound as a key point in Brexit negotiations nears after today’s market close. As such, we’re looking to avoid the currency in this week’s FX setups, while also looking for a play on Euro volatility.

It’s important to note that the below setups are designed for next week’s trade, as a gap through support or resistance could vastly alter the setup and, as such, nullify its potential before the trade ever gets started.

Bullish EUR/USD on Hold Above 1.1685

It’s been a big week for the Euro, as strength returned after what became a troubling down-trend in Q2. And while sellers remained fairly active through most of the quarter, they seemingly got shy around the 1.1500 level, producing a double-bottom formation on two separate failed attempts to take-out the psychological level.

We’ve since seen a bit of improvement in some key European data points, most importantly: Inflation. Inflation for the month of June came-in at the ECB’s target of 2% for the first time in over a year, and this started to shake-up the possibility of a rate hike ahead of the ECB’s prior estimation of keeping rates at current levels ‘at least through the summer of 2019.’ This has helped to bring EUR/USD back-above a key zone of prior support/resistance that rests from 1.1685-1.1736, each of which are taken from longer-term Fibonacci levels. If prices hold above the 1.1685 Fibonacci level as we open trading for next week, the door opens for bullish positions, looking for prices to move towards the June swing-highs that rest between 1.1821-1.1850. Stops can be investigated at prior swing lows of either 1.1630 or 1.1590, which can be adjusted to break-even at the first target while the potential for secondary targets exists at 1.1950 or 1.2000.

EUR/USD Four-Hour Price Chart

eurusd eur/usd four-hour chart

Chart prepared by James Stanley

Bearish EUR/JPY on Hold Below 130.35

Conversely, if we do see that bearish theme come back in the single currency, EUR/JPY is near an interesting spot of resistance that can open the door to bearish continuation. The psychological level of 130.00 has been big in the pair of recent, and the June swing-highs grouped-together just a bit-higher, around 130.35. If we hold below this level on Monday, the door is opened for bearish continuation, looking for prices to move back-down towards 128.52, at which point stops can go to break-even, and secondary targets could be sought out at 127.30 and/or 126.50.

EUR/JPY Daily Price Chart: Test of Confluent Resistance Zone

eurjpy eur/jpy daily chart

Chart prepared by James Stanley

Bearish USD/CHF on Hold Below Parity

If we do see a grander break of USD-weakness, the short-side of USD/CHF remains attractive. We remain short the pair from our Analyst Pick last month, and while the setup didn’t initially show promise, resistance has held from below parity, and this has helped to tilt prices back-down towards prior lows.

At this point, the pair is testing through the bottom side of a symmetrical wedge after we printed fresh two-week lows. This keeps the door open for short-side exposure, and for those looking at stops above parity, initial targets can be set around the June swing-low of .9800 for an initial one-to-one risk-reward ratio.

USD/CHF Four-Hour Price Chart

usd/chf usdchf four hour price chart

Chart prepared by James Stanley

Bullish USD/CAD on Support Showing at 1.3060-1.3070

As that pullback in USD has heated up throughout this week, so has the sell-off in USD/CAD. The previously blistering up-trend continues to pullback, and prices are now nearing an interesting zone of confluent support potential. The price of 1.3065 marks the early June swing-high in the pair, and this is also the 38.2% retracement of the 2016-2017 major move in USD/CAD. This area projects in the same vicinity as a trend-line projection taken from the April-June swing-lows, and if we do see support set-in here during the early part of next week, the door opens for bullish strategies with stops below the 1.3000 psychological level, and initial profit targets directed towards 1.3225 followed by a possible secondary target at 1.3350.

USD/CAD Daily Price Chart

USDCAD usd/cad daily price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 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 a plethora 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