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FX Setups for the Week of December 17, 2018

- DailyFX Quarterly Forecasts have been updated for Q4, and are available directly from the following link: DailyFX Trading Guides, Q4 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, join in our live DailyFX webinars each week, set for Tuesday and Thursday at 1PM Eastern Time. You can sign up for each of those sessions 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.

US Dollar Tests Fresh Yearly Highs Ahead of December FOMC Rate Decision

Next week brings a big event on Wednesday with the December FOMC rate decision. While a hike has been long-anticipated at this meeting, the big question is how aggressively the bank might look to mold policy into next year, and this will place emphasis on forward-looking projections. A hike next Wednesday would mark the fourth such move so far in 2018, and the US Dollar has shown considerable strength over the past nine months to illustrate that theme. This has amounted to a test of fresh yearly highs earlier this morning as that FOMC rate decision nears, and this keeps the door open on either side of the matter as a shift at the Fed could open the door for deeper pullback potential. Below, I look into two setups on each side of the US Dollar with eyes towards next week.

Bearish EUR/USD on Break-Below 1.1187

EUR/USD tested through short-term support this morning as taken from the symmetrical triangle that’s been building over the past month; but from a longer-term perspective, a bigger zone lurks just below price action that could further constrain down-side approaches. At 1.1212 is the 61.8% Fibonacci retracement of the 2000-2008 major move in EUR/USD, and just below that at 1.1187 is the 61.8% marker of the 2017-2018 bullish move. EUR/USD hasn’t tested below this level in 18 months, and sellers pulled up shy of a re-test at 1.1212 in November as worries around Italy were still heating up.

While not averse to short-side themes elsewhere on the chart, for a ‘big’ move of Euro weakness, I would first like to see this zone tested through before looking for targets around 1.1000 or lower. A bearish test-below 1.1187 can re-open the door for short-side strategies in the pair.

EUR/USD Daily Price Chart: Key Support and Resistance on Either Side of Triangle

eurusd eur/usd daily price chart

Chart prepared by James Stanley

Bearish USD/CHF on Hold Below Parity

On the short-side of the US Dollar, USD/CHF has recently become of interest. I looked into the pair for USD-weakness strategies last month as it appeared to be topping-out. Prices began to break-lower in mid-November, and that weakness ran all the way until a Fibonacci level could come into play to help cauterize the lows. This took place at .9902, which is the 61.8% retracement of the 2016-2018 major move in the pair; and that led to a support bounce that ran into the vaulted parity level. Parity held the highs for a little over a week as the calendar turned into December, and this level remains of interest for resistance in USD/CHF.

For next week I want to see USD/CHF hold below parity on Monday, at which point the prospect of short-side themes becomes attractive again. If that resistance remains respected, this can open the door for rather tight stops above the level, and targets re-directed towards the .9902 support, followed by .9850 and .9750.

USD/CHF Four-Hour Price Chart

usdchf usd/chf four hour price chart

Chart prepared by James Stanley

Bearish AUD/USD On Hold Below .7250

AUD/USD has had a very interesting Q4. The pair came into October in the midst of a nine-month sell-off, sticking below a bearish trend-line for much of the period. What happened in October wasn’t necessarily bullish as much as it was simply ‘less bearish,’ but as the US Dollar was ripping to fresh highs, AUD/USD started to show a respect of the lows with buyers holding support above the .7000 big figure. And as the door opened into November, the pair was ready to jump as a short-term theme of USD-weakness showed up. That bullish AUD/USD theme lasted into the first few days of December, but over the past week that’s started to come into further question as sellers continue to push towards fresh lows.

In yesterday’s webinar, I looked into a brewing bear flag formation. Prices had bounced from a key support zone in a rather consistent fashion, allowing for the build of a bullish channel near support. That bear flag unfolded this morning as the Dollar ran up to fresh yearly highs, and this amounted to a print of six-week lows in the pair. For next week, I want to look for resistance around that prior area of support that runs from .7185-.7205; and provided that prices remain below the .7250 level, the door can remain open for bearish strategies. The price of .7120 can be looked at as an initial target, at which point stops can be adjusted to break-even; and secondary targets can be cast down towards .7085. Optionally, a third scale on the lot can be left open, targeting a push down to .7050.

AUD/USD Two-Hour Price Chart

audusd aud/usd two hour price chart

Chart prepared by James Stanley

Bearish USD/JPY on Hold Below 114.60

Next week brings a couple of key drivers to the fray for USD/JPY, as the Wednesday FOMC rate decision is followed by a Bank of Japan rate decision later that night. And then Thursday brings Japanese inflation data for the month of November, helping to provide a few different drivers of interest that can keep USD/JPY on the move.

On the USD/JPY chart, the 115.00 level remains as an item of interest as sellers have continually come-in to offer resistance below this level over the past 21 months. The 2018 swing-high was in the opening day of Q4 around 114.50; but that led into another bearish run in the pair that pushed prices back-below 112.00. Since then, there have been multiple attempts to re-approach that high, each of which has failed, helping to build in lower-highs over the past two months to go along with almost a month of support around the 112.30 level. This opens the door for short-side plays, looking for prices to revert back towards that support area lurking around 112.30; with secondary targets set around 111.63.

USD/JPY Eight-Hour Price Chart

usdjpy usd/jpy eight 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 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 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