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

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

James Stanley, Senior Strategist

US Dollar Talking Points:

  • The USD caught a strong bid around the FOMC last month but, since then, has oscillated within a range near resistance.
  • Tomorrow brings inflation data for the month of June and this will be a big driver across global markets. The two days following bring Chair Powell for the twice-annual Humphrey Hawkins testimony to Congress.
  • he analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

This could be a big week for the US Dollar. Inflation data is released on Tuesday morning and this leads into Chair Powell’s testimony on Capitol Hill on Wednesday and Thursday. And then on Friday we get a couple of pieces of high-impact data, with the release of June Retail Sales figures to go along with University of Michigan Consumer Sentiment.

There’s an unsettled backdrop in the Greenback right now, as the currency surged on the June FOMC rate decision but, hasn’t done much since then. Prices have continued to respect resistance as a range has developed over the past few weeks and there has been a shorter-term observation of higher-highs and lows, looked at a little later.

But, from the weekly chart, the potential certainly exists for bearish swing scenarios after a build of resistance at a key spot, and with the drivers on the calendar for the days ahead.

US Dollar Weekly Price Chart

US Dollar Weekly Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

On a shorter-term basis, there may be more of a bullish claim as buyers have continued to press for higher-highs and higher-lows after that Fed-fueled breakout last month.

And if we draw back towards drivers, this breakout took place even with Fed Chair Powell saying that forecast should be taken with a grain of salt. It does not appear that the US is anywhere near a rate hike but, the fact that inflation has continued to press-higher has certainly kept the door open to the possibility at a date sooner than what was initially expected.

If we end up with another strong inflation print tomorrow, with the data printing above the 4.9% expectation for headline CPI or the 4% expectation for core CPI, there could be additional bullish motive in the USD that could push for a deeper test on the chart.

US Dollar Four-Hour Price Chart

US Dollar Four Hour Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

EUR/USD – Are Bears About to Fold?

In the immediate aftermath of that FOMC rate decision, I highlighted the backdrop in EUR/USD as a possible candidate to work with bullish-USD run.

The first zone that came into play after that rate decision for lower-high resistance was at the 1.1965-1.2000 zone on the chart, looked at on June 18th.

And then in early-July, I took a look at another zone that’s continued to hold the highs, plotted around the 1.1900 handle. That inflection did lead to a fresh three-month-low that was set last week, but it’s what happened after that that remains interesting.

Price action jumped right back up to the resistance zone, giving an appearance of a pattern with tendencies towards an inverse head and shoulders pattern. The setup itself is a bit too messy for me to put that tag on EUR/USD, but similar motive exists that makes inverse head and shoulders patterns interesting, and that’s a return to resistance after a form of possible capitulation had taken place.

EUR/USD carries breakout potential with pushes above the 1.1900 handle, and the next big spot of resistance on the EUR/USD chart plots around that same 1.1965-1.2000 zone.

EUR/USD Four-Hour Price Chart

EURUSD Four Hour Price Chart

Chart prepared by James Stanley; EURUSD on Tradingview

GBP/USD: Is the Low In?

On the bearish side of the US Dollar, I looked at GBP/USD earlier this month, plotting for support around a familiar zone around the 1.3800 handle. That support did not hold and as USD bulls continued to push, GBP/USD found its way back down to the 1.3750 psychological level.

But, after holding an initial test on July 2nd, last week brought a slightly higher-low as buyers continued to protect that ground, and price action popped-up to a fresh two-week-high ahead of last week’s close.

I had looked at the pair in this week’s GBP Technical Forecast, and there’s still a dearth of trend-side drivers to work with as the pair has, in essence, been range bound for the past couple of weeks.

This can, however, remain as one of the more attractive USD-weakness themes, largely taken from the recent higher-high along with the prospect of longer-term mean reversion and a return towards the 1.4000 psychological level.

To learn more about psychological levels, check out DailyFX Education

GBP/USD Four-Hour Price Chart

GBPUSD Four Hour Price Chart

Chart prepared by James Stanley; GBPUSD on Tradingview

USD/CAD: Amplified USD Themes

There was considerable divergence in US and Canadian economies from late-April through early-June. When the BoC started to look at post-pandemic policy at their April rate decision, many were caught off-guard and the Canadian Dollar then went on a consistent run of strength.

In the US, however, that signal didn’t show up for almost two months later and, even then, it wasn’t much of a signal at all as it was a simple line item in the dot plot matrix showing that the bank may have a tolerance for faster rate hikes.

But in a world of silence even a pin drop can be deafening, and the simple act of the bank making a move towards ‘less loose’ policy has shaken things up. In USD/CAD, the reversal showed visibly in the wake of the Fed with the pair jumping from a failed test at 1.2000 earlier in June to a near-test of 1.2500 later in the month.

I had looked into the pair earlier this month, plotting around a zone of support in the 1.2250-1.2300 area. That support test held and prices broke out to another fresh high, finally testing through that 1.2500 psychological level.

At this stage, USD/CAD appears as though it can feast or famine based on the way that USD runs this week. The backdrop is there for a bullish breakout – eyeing the 1.2622 Fibonacci level that last offered resistance in late-April. But, from the weekly chart or longer, similar to USD above, the backdrop seems more conducive on the bearish side of the matter.

To learn more about Fibonacci, check out DailyFX Education

USD/CAD Daily Price Chart

USDCAD Daily Price Chart

Chart prepared by James Stanley; USDCAD on Tradingview

AUD/USD: Resistance at .7500 Keeps Door Open for Bears

Also of interest on the long side of the USD, I looked at AUD/USD in the aftermath of the June FOMC rate decision.

At the time, the pair had just started to test the .7500 psychological level, which has been a big one in AUD/USD for some time. That support test led into a bullish channel, which was really just a bear flag, and that gave way to another sequence of lower-lows and lower-highs.

At this point, price action appears to be testing for another lower-high; but this time its taking place around that same .7500 level. This can keep the door open for bearish scenarios in the pair and this could remain as one of the more attractive bullish USD setups ahead of and around inflation data and Chair Powell’s Congressional testimony.

AUD/USD Four-Hour Price Chart

AUDUSD Four Hour Price Chart

Chart prepared by James Stanley; AUDUSD on Tradingview

--- Written by James Stanley, Senior 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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