Forex Talking Points:
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FX Markets Coiled for the End of Q3
As we wind down Q3, a number of viable FX themes remain across global markets. This week’s economic calendar remains brisk as a number of items will be in the spotlight as we move towards the Q4 open; key of which will be the significant moves that were seen last week as the US Dollar broke down below a descending triangle pattern while EUR/USD broke-out to fresh three-month highs.
As we discussed in last week’s FX setups, one of the bigger recent takeaways has been the re-emergence of Yen weakness, and this remains as a theme of interest as we move into Q4. Below, we look at a series of setups designed for this week’s price action around these prevailing FX themes.
Bullish EUR/JPY Above 130.75
We looked into bullish setups in EUR/JPY last week, looking to take advantage of that Yen weakness with a Euro that had continued to show signs of strength. We looked for higher-low support above the 130.00 big-figure in a zone that started at 130.35. That support filled-in fairly quickly after we had published, and it’s been off to the races ever since. At this stage, the prospect for continuation remains, and the challenge will be one of timing as prices currently remain near recently established highs.
Below, we look into another higher-low support zone in the pair that runs from 131.48 up to 131.99. This area gave us a quick iteration of support this morning before bulls were able to respond; but we may be able to continue to focus on the zone for another iteration of support. This could allow for stops below the Wednesday swing-low of 130.77 with the aim of bullish continuation in the pair up to fresh highs as we wind down Q3.
EUR/JPY Four-Hour Price Chart: Q3 Looking to Finish on a Strong Note
Chart prepared by James Stanley
EUR/USD Bullish Strategies Above 1.1709
Well, the Euro finally did it. It took almost a full month but, EUR/USD has finally broken-above the big zone of resistance that’s held the highs in the pair for most of the summer. The breakout did not come without struggle, however, as the resistance zone that runs from 1.1709-1.1750 held multiple topside advances in the pair.
But – as we looked at last week and even the week before, an eventual incline over this level would open the door for bullish strategies, and as we stare down the end of Q3 that’s the scenario that is on the cards. At this point, EUR/USD is holding near fresh Q3 highs. Given the scope of potential for volatility, with a loaded economic calendar and a series of highly-pensive themes, chasing here does not seem prudent. What could be more opportunistic, however, is waiting for that prior area of resistance to come into play as higher-low support. We’ve already had one such observation of this on a short-term basis, as we drew attention to the 1.1725 level on Friday, and that’s so far helped to hold the lows for this week.
At this point, traders would want to look for another test of support, and this could be sought out in the area from that 1.1725 swing-low up to the 1.1760 level A support test here opens the door for stops below the zone, and targets directed towards near-term resistance around the 1.1800 area and thereafter.
EUR/USD Two-Hour Price Chart
Chart prepared by James Stanley
Stay Short USD/CHF: Look for Re-Load .9630-.9660
One of our preferred ways of working with USD-weakness so far in the month of September has been in USD/CHF as the pair has remained in a rather clean down-side move. We looked at entries earlier in the month and then again last week, catching lower-high resistance in a zone that ran from .9684-.9715; which then led into fresh lows as prices dropped by more than 160 pips from the Wednesday high to the Friday low.
At this stage, the door appears open for continuation but traders will similarly want to wait for prices to pullback to a more amenable level. For this week, we’re going to focus on lower-high resistance in an area that runs from the .9630 Fibonacci level up to.9660 prior swing-support.
USD/CHF Two-Hour Price Chart: Lower-High Resistance Potential for Bearish Continuation
Chart prepared by James Stanley
USD/JPY Contingent Bearish Breakout on Push Below 111.65
What if it all goes awry? The three setups that we looked at above were largely built on the basis of expected continuation but, what if matters don’t continue? What if we end up with a case of nasty risk aversion as we move towards the end of the quarter, and given the series of events that remains on the calendar this must be held as at least a possibility.
While we normally build an element of balance in these articles, each of the three above setups are largely looking for current themes to remain into quarter-end; so below I look at a setup that runs counter to that.
USD/JPY has continued to march higher despite the really weak US Dollar that’s shown over the past two weeks, and this highlights the fact that the Yen has been even weaker than the US Dollar. This is part of the reason we focused-in on bullish EUR/JPY setups last week, but if this theme were to change or shift, there’s another market of interest that could provide some workable themes.
USD/JPY has been building into a steady up-trend over the past two weeks, and last week’s low came-in at a big level around 111.64. If prices break-below this swing-low, the door re-opens to bearish strategies as Yen strength becomes interesting again. This could open the door for down-side targets at 110.86 and then 110.00 even.
USD/JPY Two-Hour 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
