Talking Points:
- 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.
- If you’d like more color around any of the setups below, we discuss these in our live DailyFX webinars each week, set for Tuesday and Thursday at 1PM Eastern Time. You can sign up for each of those session from the below link:
Tuesday: Tuesday, 1PM ET
Thursday: Thursday 1PM ET
Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.
A Quieter Calendar to Allow for Proof of Trend
This week opens with a quieter economic calendar than what we’ve seen over the past few weeks, and given some of the themes that have begun to show with a bit more prominence, this opens up the possibility for trends to avail themselves without the noise of constant near-term data on the calendar.
We now have two weeks until the end of Q3. The first quarter of this year was largely a stage for continuation, at least if looking at trends around the Euro, US Dollar and British Pound. The second quarter brought pullbacks in those themes that raised the prospect of full-fledged reversals; but so far throughout Q3 we’ve largely seen a state of hold as both Euro weakness and US Dollar strength have been unable to continue. The British Pound, meanwhile, has recently shown some chaotic price action as Brexit-headlines have pushed prices in either direction, and this is something that may continue as we move into Q4 of this year.
One of the more interesting takeaways from last week, however, came from the Japanese Yen. The Japanese currency put in a move of weakness around the Thursday release of US CPI, and this helped USD/JPY run up to a fresh monthly high above the 112.00 level. This leads into a Bank of Japan interest rate decision on the calendar for next week, and below we look at a couple of setups on either side of JPY.
Bearish AUD/JPY on Hold Below 81.00
AUD/JPY started the month of September in a troubling fashion, dropping down to fresh ten-month lows in the first week of the month, extending a down-trend that’s been in place since mid-July that’s seen the pair shed as much as much as 500 pips. But last week’s Yen weakness helped AUD/JPY to recover, and prices have moved back-above the key psychological level of 80.00.
There’s a bearish trend-line in-play on the pair, and price action is near an area of prior resistance around the 81.00 handle that can keep the door open for short-side setups. This can open the door for targets at the big figure of 80.00, at which point stops can go to break-even as deeper profit targets are set towards 79.37 and then 78.75.
AUD/JPY Four-Hour Price Chart
Chart prepared by James Stanley
Bullish EUR/JPY on Hold Above 130.00
We looked into the pair last week ahead of the ECB rate decision, and at the time price action remained in a non-directional state, catching resistance off of a confluent batch of Fibonacci resistance levels. That resistance was soundly broken last week as EUR/JPY jumped up to a fresh monthly high, catching a bit of resistance off of the 131.00 handle in the process.
As we wrote last week, a test of these highs opens the door for higher-low support, which remains as a workable theme as we open up a fresh week.
EUR/JPY Four-Hour Price Chart: Holding Resistance at Monthly Highs
Chart prepared by James Stanley
At this point, prices are right back to testing those highs, so we now have two ways of moving-forward with bullish continuation approaches. Either a) a revisit to the higher-low support zone, coupled with a defense of 130.00 or b) fresh monthly highs which open the door for higher-low support at our current zone of resistance, as taken from last week’s high to the August swing-high around 130.90.
EUR/JPY Hourly Price Chart: Conditional Bullish Approach
Chart prepared by James Stanley
EUR/USD: Bearish Until Key Resistance Encroached Upon
On the side of USD strength, it can be difficult to muster much at the moment given that the currency is moving back down to test fresh monthly lows. But – as we’ve been following, much of the dynamics in the US Dollar of recent appear to draw back to EUR/USD, as it was the pairs risk aversion-led sell-off in May and again in early-August that really made the Dollar shine. But – as those themes of risk aversion have pulled back, so have US Dollar bulls, to the point that we may soon be nearing a re-ignition of the longer-term bearish trend in the currency.
In EUR/USD, we’ve been following the key zone of resistance that runs from 1.1709-1.1750, and this area has held up through multiple resistance tests, including in late-August and again last week. But bulls have yet been deterred, as last week’s resistance test led into a higher-low, and the pair is bouncing-higher so far on the fresh week.
But – as we’ve been following, the setup can be approached in a bearish fashion until that resistance is taken out, at which point traders would likely want to acknowledge the prospect of a longer-term return of strength in the pair. If we do see resistance show inside of last week’s swing high at 1.1722, the door can remain open for short-side setups. For that approach, this week’s swing-low of 1.1618 becomes an ideal first target, followed by secondary targets around the 1.1530 support that helped to mark last week’s low.
EUR/USD Four-Hour Price Chart: Approaching Key Area of Long-Term Resistance
Chart prepared by James Stanley
Bearish USD/CHF For Fresh Lows
On the bearish side of the US Dollar, we’ve been following USD/CHF, catching lower-high resistance at a key zone last week ahead of the pair pushing down to print fresh five-month lows. At this point, the primary fear for bearish continuation would be the potential for an oversold environment; but bearish structure remains and the door can stay open for down-side continuation strategies.
At this point, traders would likely want to look for a bounce up to another fresh lower-high. Last week’s resistance came-in at the psychological level of .9750, and we look at two different areas that can be used for lower-high resistance in the pair as we move deeper into this week.
USD/CHF Four-Hour Price Chart: Lower-High Resistance Potential for Bearish Continuation
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
