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US Dollar Price Action Setups: GBP/USD, AUD/USD

US Dollar Price Action Setups: GBP/USD, AUD/USD

James Stanley, Senior Strategist

US Dollar, GBP/USD, AUD/USD Talking Points:

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It’s remarkable to think that in a little over a week we may be done with the 2020 election. But, then again, we might not even have final results for a week or more after polls close; and given how turbulent 2020 has been, it’s probably wise not to bank to heavily on what ‘should’ happen actually taking place.

One thing that has been very clear in the run-up to the election is the US Dollar’s bearish backdrop, which has been in-place since March of this year. It seems as though the prevailing thought is regardless who wins the election, US Dollar weakness is on the horizon as either scenario will do little to change the trajectory at the Fed – or the need for stimulus.

But, given the outsized response that’s already shown in equities in the early-portion of this week, it’s obvious that there’s something creating some risk aversion. And it’d be simple to look at the calendar and pin that all on the election. But, there’s little change there: Most polls are sitting very close to where they were a week or two weeks ago; and the more likely factor creating the shift are the surprising Covid numbers that continue to show, in both new cases and hospitalizations. This, again, presses for the need of stimulus which has largely been considered USD-negative and equity-positive.

At this point, the US Dollar doesn’t have much to show for trends and is fast approaching a key area of support sitting underneath price action. It was a zone of confluence that helped to turn-around the five-month-trend in early-September. But that move topped-out later in the month and since then bears have been gaining more and more control of the move so far in October. Currently projecting to around 92.25 is a long-term trendline, and just below around the 92.00 handle on DXY are two different longer-term Fibonacci retracement levels. A test here could possibly re-open the door for items of strength.

US Dollar Weekly Price Chart

US Dollar Weekly Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

AUD/USD Descending Triangle: Bearish Breakout Potential

On the long side of the US Dollar, AUD/USD may carry some allure. I’ve been chronicling the toping-out process in the pair over the past couple of months, first looking at the turn from resistance towards the .7000 handle, then for a bounce from that zone, and then for another bearish push.

Through it all – AUD/USD has built-in a descending triangle pattern, and such formations will often be approached with the aim of bearish breakouts. As the horizontal support zone around the .7000 handle gets more and more tests, the ensuing bounces have been growing more and more shallow – highlighting a diminishing marginal impact from buyers at this zone. This keeps the door open for a re-test of support followed by the possibility of a bearish breakdown in the pair.

To learn more about descending triangles, check out our DailyFX Education section.

AUD/USD Eight-Hour Price Chart

AUDUSD Eight Hour Price Chart

Chart prepared by James Stanley; AUD/USD on Tradingview

GBP/USD Back to Key Support Zone

Last week saw the British Pound break out in a big way, setting a fresh monthly high in GBP/USD and this may have some potential for continuation.

On the short-side of the US Dollar, GBP/USD can remain of interest. I had similarly looked at this setup in the weekly forecast on the US Dollar, and GBP/USD is currently huddled around a key spot on the chart, around the psychologically-important level of 1.3000. Also of interest is the 76.4% Fibonacci retracement at 1.3019, creating a bit of confluence around the psych level; and the 61.8% retracement from that same major move is what helped to cauterize the lows in late-September.

For those looking at USD-weakness strategies, the topside of GBP/USD can remain compelling; looking for a bounce from support (which was prior resistance, and before that – support).

GBP/USD Four-Hour Price Chart

GBP/USD Four Hour Price Chart

Chart prepared by James Stanley; GBP/USD on Tradingview

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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