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USD Tempers Prior Breakout Gains Through FOMC, NFP
It’s been another eventful week across FX-land, but unlike what was seen in the final full week of April, price action this week was pushed by some very noticeable drivers. The week prior saw some very interesting technical moves, punctuated by a bullish breakout in the US Dollar to fresh 22-month highs, which carried with it a bearish breakout in EUR/USD.
Those themes have since cooled, although very little has shown in a linear fashion. The US Dollar put in a string of losses leading into this week’s FOMC rate decision, with the Greenback even pushing below weekly support around the release of the statement. But, around the time that FOMC Chair Jerome Powell took the podium, USD bulls took-hold, and prices charged higher into the Friday NFP release. That NFP release had a strong headline print, with +263k jobs added versus the expectation of +190k; but the internals weren’t so hot as labor force participation ticked-higher and Average Hourly Earnings disappointed, speaking to the continued strain on inflation that’s been showing more prominently in the US economy.
This leaves a series of interesting themes for next week, in which the highlight on the economic calendar is expected to be rate decisions out of Australia and New Zealand to go along with the US CPI report, set to be released next Friday morning. Below, I go over a series of price action setups in anticipation of next week. Key for that will be the Friday move in USD, in which we’re currently seeing a non-completed bearish engulfing pattern, driven by the move that emanated from NFP. This is a setup that will often be approached in a bearish fashion and connecting the dots to the longer-term setup in USD, this could allow for a deeper retracement after last week’s breakout has reversed.
US Dollar Daily Price Chart: Bearish Engulf, Lower-High Potential
Chart prepared by James Stanley
EUR/USD: Bearish on Hold Below 1.1275, Bullish Above 1.1325
One pair that does hold some attraction around themes of USD-strength is EUR/USD. I came into the week looking for bearish strategies in EUR/USD, and the early-week pullback in USD allowed for the pair to move up for a quick re-test of last week’s highs around the Wednesday FOMC rate decision. But – as USD-strength came rushing back, the bottom fell out of EUR/USD and prices fell back below the 1.1187 Fibonacci level.
What happened after that, however, is somewhat disconcerting for EUR/USD bears. Sellers pulled up shy of a re-test of last week’s low, leading into a lower-high. And while this doesn’t necessarily negate the bearish potential in the pair, it does, at a minimum, urge caution for chasing as further digestion potential remains.
For next week, I want to continue to press the short-side theme in the pair until it’s proven invalid, with the primary motive coming from a hold of lower-high resistance around the prior zone of support from 1.1187-1.1212. This can allow for a focus on resistance holding around the same 1.1250-1.1262 area. Initial target potential could be sought around the 1.1150 area. After that, short-side breakout potential will be the most interesting theme around EUR/USD, looking for fresh 22-month lows around 1.1075, 1.1000 and, eventually, in the space from 1.0814-1.0863.
EUR/USD Two-Hour Price Chart
Chart prepared by James Stanley
GBP/USD: Bullish on Pullback, Hold Above 1.3040
The Friday rush of USD-weakness showed very visibly in GBP/USD. To be fair, the pair already had a fairly bullish week, breaking-above the bearish trend-line that made up resistance in the descending triangle, which was confluent with the 1.3000 psychological level. And as discussed on Tuesday, shortly after that move happened, the prior zone of resistance from 1.2960-1.3000 became support potential in GBP/USD. That was tested on Friday morning around NFP, after which the pair launched-higher and continued to rally.
At this point, bullish potential remains in GBP/USD. The primary issue is buying an overbought short-term trend that’s very near a key point of resistance; so rather than chase, I’m going to look for a pullback in the pair next week. There are two areas of interest for such a theme: The previous zone of resistance from 1.3087-1.3117 would be optimal. But, if that cannot hold, another zone exists a little-lower, around the 1.3040-1.3055 area on the chart, and that would allow for stops below the Friday low.
GBP/USD Four-Hour Price Chart
Chart prepared by James Stanley
USD/CAD: Bearish on Hold Below 1.3500
Last week’s reversal setup in USD/CAD played-out fairly well in the first half of this week. The pair found support off of the Fibonacci level at 1.3375 and bounced-higher after the Wednesday FOMC rate decision; and then posed another bearish move around the NFP reversal. This continues the theme of digestion in the pair that’s been brewing for the past couple of months. That’s shown in the fashion of a rising wedge pattern, which will often be approached with the aim of bearish reversals. This can keep the door open for short-side reversal potential, looking for a hold below the 1.3500 level with initial targets directed towards the 1.3350 area on the chart. After that, secondary target potential exists around 1.3300.
USD/CAD Daily Price Chart
Chart prepared by James Stanley
AUD/USD: Grasping at .7000 Through USD Breakout
Aussie continues to grind around support, with the .7000 big figure coming into play yet again this week. And next week brings an RBA rate decision, so there should be ample motive for the currency to remain on the move.
This brings up an item of potential for range continuation, particularly for strategies incorporating USD-weakness. Traders can look at a hold of support around last week’s lows, targeting a move-higher in the range that’s been in-play now for the past couple of months. Initial target potential exists around the .7100 level, followed by .7150 and then the big zone of resistance in the range that runs from .7186-.7206.
AUD/USD 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 an abundance 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
