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FX Price Action, GBP/USD, USD/JPY, USD/CHF, USD/CAD Talking Points:

USD: Bulls in a China Shop

It was a big week for the US dollar as bulls returned with gusto. Last week provided a quick flicker of weakness around some comments from NY Fed President, John Williams. Those remarks were walked back shortly after by the NY Fed, and the US Dollar began to bounce in response. That bounce continued through this week’s trade save for small blip in the radar that developed around Thursday’s ECB rate decision. At this point, the US Dollar is trading at fresh seven-week-highs as the currency has continued to rally ahead of next week’s widely-expected rate cut.

Along those lines, from last week’s FX Setups the two long-USD setups remain attractive while the two short-side Dollar setups were quickly stopped out. In EUR/USD, a break below the higher-lows that had held for the prior month took out the bullish backdrop; while AUD/USD pushing below the .7000 big figure quickly negated that bullish potential and the pair just continued to fall through the rest of the week.

For next week, the US Dollar will likely remain on the move. The Fed is widely-expected to cut rates for the first time in a decade on Wednesday but as has become the norm, the importance is with the details. Is the Fed considering more cuts later this year? Or of recent, grumblings have even started around more QE at some point if the situation calls for it. The big matter of importance is just how dovish might the FOMC be? At this point, a large amount of divergence remains between market expectations for rates and the FOMC projections that were provided at the June rate decision. As discussed this morning, rates markets are showing a 53.5% probability of at least three cuts by the end of the year. The Fed, at this point, has merely pointed to one. Below I look at two setups on either side of the US Dollar ahead of next week’s FOMC-fueled volatility.

US Dollar Daily Price Chart

US Dollar Daily Price Chart

Chart prepared by James Stanley

GBP/USD Bearish Sub-1.2500

On the long side of the US Dollar, I came into this week looking at the British Pound in an attempt to further fade-out last week’s strength. As USD-weakness priced-in around those Williams’ comments last week, GBP/USD flexed up to the 1.2550 level. Prices had started to decline again ahead of last week’s close, so I wanted to look for a bounce into a key zone of potential resistance to open the door for short-side setups. That zone runs from 1.2500-1.2523, and this filled-in on Wednesday of this week ahead of a break down to fresh two-year-lows.

At this point, selling at current levels can be a challenge as price action remain very near those two-month-lows; but on the long side of the US Dollar, this remains as an attractive venue, and a pullback to resistance at prior support can re-open the door for bearish plays. The area of focus that appears most attractive for that scenario right now comes-in around the 1.2442-1.2450 zone that had provided support earlier in July. This can open the possibility of stops above this week’s high coupled with targets back at the 1.2400 level; after which break-even stop moves could be investigated along with deeper profit targets looking for a continued break-down to new two-year-lows.

GBP/USD Two-Hour Price Chart

gbpusd gbp/usd price chart

Chart prepared by James Stanley

USD/JPY: Bearish on Hold Below 109.00

If USD-weakness shows up next week, the short-side of USD/JPY could quickly become attractive again. The pair is currently re-testing a zone of resistance that had come into play to help set the June swing-highs, and a hold of this zone through the Monday open keeps the door open for short-side swing setups with stops investigated above the July high around 109.00. Nearby is bearish target potential around 108.00-108.25, after which 107.50 becomes of interest. After that, the 107 level may come into play but that theme would likely need to be coupled with either a really weak US Dollar or a really strong gust of risk aversion.

USD/JPY Four-Hour Price Chart

usdjpy usd/jpy four hour price chart

Chart prepared by James Stanley

USD/CHF: Bearish on Hold of .9950

It was a strong week in USD/CHF as Dollar-strength came back with aggression. The pair made a fast move towards the parity handle, slowing down when re-testing resistance from earlier this month around .9940-.9950. If this zone can hold through Monday trade, the door remains open for short-side swing potential. Stop placement could be investigated at either .9965 (aggressive) or above the parity handle (more conservative). The luxury of that tighter stop could be initial targets at the Fibonacci level around .9902 at which point break-even stop moves could be investigated. Beyond that, .9850 and .9800 remain of interest for short-side target potential.

USD/CHF Four-Hour Price Chart

usd/chf usdchf four hour price chart

Chart prepared by James Stanley

USD/CAD Bullish on Hold Above 1.3110

Back on the long side of the US Dollar and USD/CAD remains of interest. I started looking at bullish scenarios in USD/CAD last week as a falling wedge formation had formed. Key for that theme was the fact that bears appeared very reticent to re-test the 1.3000 handle and, sure enough, even as USD-weakness was pumping in around those comments from John Williams, USD/CAD merely postured ten pips away from the psychological level.

This week saw USD strength come back and two of the three targets looked at coming into this week have been touched. As discussed in that piece, additional target potential remains around the 1.3250-1.3300 zone, but this will likely need an assist from a less-dovish FOMC outlay than what many are looking for.

A re-test of support from 1.3132-1.3150 can re-open the door for bullish trend strategies, with stop placement investigated below the 1.3110 low. Targets can be directed towards 1.3200, followed by that ‘big picture’ zone of possible resistance around prior support of 1.3250-1.3300.

USD/CAD Four-Hour Price Chart

usdcad usd/cad four 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 have a section for each major currency, and we also offer a plethora of resources on Gold or 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