US Dollar Price Action Setups Pre-FOMC: EUR/USD, GBP/USD, USD/CAD
US Dollar, EUR/USD, GBP/USD, USD/CAD Talking Points:
- Next week brings the FOMC for a quarterly rate decision in which we’ll also see the bank’s updated guidance and forecasts.
- The big question is whether the Fed will begin to shift towards tapering asset purchases. The big drivers for last week were CPI on Tuesday, retail sales on Thursday and University of Michigan Consumer Sentiment data on Friday, with the net result being USD-strength.
- The 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.
It’s shaping up to be a big week for the US Dollar. While the currency spent the first few days of the week continuing the range that had built previously, Thursday price action saw bulls make a move and that continued through Friday, with a stern run through resistance and on to fresh September highs.
The big driver for next week is the FOMC, and this is likely playing a role in the matter. Inflation data was released on Tuesday and for the first time since October of last year, it printed below expectations. This gave hope to the fact that inflation may be transitory as the Fed has been claiming. But, on Thursday, a really strong beat in retail sales seemed to shake up those projections, and that move continued through Friday, when a Consumer Sentiment report out of the University of Michigan gave the bullish trend another shot-in-the-arm.
At this point, the USD is testing a resistance level of note at 93.19. This was the monthly high from July that ended up showing as resistance over a couple of different iterations in August. Beyond this price, 93.42 remains relevant, as this was the Q1 swing high, and after that we have the 2021 high in view, plotted at around 93.73.
On the support side of the Greenback – prior resistance can now function as a possible ‘s1’ zone and this runs from around 92.80-92.90. If the Dollar pulls back to start trade next week, this becomes an area of interest for bullish continuation scenarios.
A bit lower on the chart is the confluent zone around the 92.46 level, which helped to catch support this week, after which the 92.20-92.26 zone comes into play.
US Dollar Eight-Hour Price Chart
EUR/USD Tests the Big Zone
That move of USD-strength on Friday has helped to drive EUR/USD down towards a big zone of support, spanning from Fibonacci levels at 1.1709 and 1.1736. This zone has been in-play in a few important ways going back to August of 2020 when it helped to set support, and then again in late-Q1 when it helped to mark the low in the pair and that held until sellers were able to push below last month.
But that bearish break was short-lived and price action soon snapped back. EUR/USD eventually found resistance at the same 1.1900 zone that held the high and July and buyers have been in-control since.
With prices now touching down to this zone of support, the door may be opened for a quick pullback play. But, if USD-strength continues into and perhaps even after the FOMC next week, the door very much remains open to breakdown themes in EUR/USD. The 2021 low is at 1.1664 and a break of that opens the door for a run down to 1.1600 or perhaps even the 1.1448-1.1500 zone.
EUR/USD Daily Price Chart
GBP/USD Down to Range Support
The GBP/USD chart remains messy, in my opinion, but it does present a bit of contrast to EUR/USD above of USD/CAD below. GBP/USD has been holding in a range so far through September trade with decent definition at both support and resistance. Resistance has shown around the 1.3879 Fibonacci level that I’ve been following while support has plotted from around 1.3729-1.3750.
This can keep the door open for range continuation setups in to next week, and that could be attractive for those looking to fade this recent round of USD-strength.
GBP/USD Four-Hour Price Chart
USD/CAD Explodes From Wedge, Tests September High
As USD strength picked up on Friday, that showed up in USD/CAD in a very big way. Before that, the pair was caught in a symmetrical wedge formation as prices were continuing to coil into a tighter and tighter range. But – this was taking place with respect to and above a long-term support zone from around 1.2500-1.2622.
That wedge resolved in a big way on Friday with prices breaking out to push up for a test of the September high. As of this writing, that move has stalled at the high, and given that I’m writing this on a Friday and chasing ahead of a weekend seems imprudent, a pullback to support around prior resistance could re-open the door for bullish trend strategies. This shows around the 1.2695-1.2700 area on the chart.
USD/CAD Four-Hour Price Chart
--- 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.