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USD Setups Heading into FOMC- EUR, GBP & Cross at Resistance

USD Setups Heading into FOMC- EUR, GBP & Cross at Resistance

Michael Boutros, Strategist

Talking Points

  • Key levels ahead of Major USD Event Risk
  • Monthly opening ranges keep topside in focus on EURUSD, EURGBP
  • GBPUSD Holds October High / January 2nd 2013 Close High
  • Dow Jones FXCM Dollar Index (USDOLLAR) at key support

USDOLLAR Daily Chart

Forex_USD_Setups_Bias_Heading_into_FOMC-_EUR_GBP_Cross_at_Resistance_body_USDOLLAR_DAILY.png, USD Setups Heading into FOMC- EUR, GBP & Cross at Resistance

Chart Created Using FXCM Marketscope 2.0

Technical Outlook

  • October opening range break puts index at key support 10,365- 10,386 / channel support
  • Break below targets objectives at 10,323 ( June high) and Fibonacci support at 10,292
  • Resistance 10,455 with breach above 10,475 targeting 10,509 & Oct high (10,535)
  • Note daily RSI Divergence in price action / topside trigger pending
  • Key Events Ahead: Retail Sales 10/29, ADP Employment, CPI & FOMC 10/30, ISM Manufacturing 11/1

Notes: The index tested and held the key support range we highlighted last week and despite a weaker than expected NFP report, the greenback has continued to respect this threshold. As we head into the FOMC on Wednesday we remain focused on the, “cluster of near-term support targets including operative channel support, the 1.618% Fibonacci extension off the yearly high and the 38.2% retracement from the 2011 low. Although the preliminary opening range has kept the near-term bias on the short-side, we will respect this key support,” heading into the FOMC with the risk of a downside break mounting on a dovish policy statement. While these levels are attractive for a near-term low to be in place, it’s hard to see the central bank offering further support for the greenback and only a breach back above 10,470 alleviates further downside pressure. Such a scenario would eye topside resistance targets at 10,535, 10,581 and channel resistance dating back to the July high.

EURUSD Daily Chart

Forex_USD_Setups_Bias_Heading_into_FOMC-_EUR_GBP_Cross_at_Resistance_body_EURUSD_DAILY.png, USD Setups Heading into FOMC- EUR, GBP & Cross at Resistance

Technical Outlook

  • EURUSD within well-defined ascending channel / pitchfork formation since July
  • Now at Key Resistance Range 1.38- 1.3832 / Channel Resistance
  • Daily RSI in overbought territory / short trigger pending
  • Support Objectives 1.3700/10, 1.3638 / pitchfork support, 1.3535/75 range
  • Breach above 1.3832 targets channel resistance & 2008 trendline resistance (variable)
  • Key Events: EU Consumer Confidence 10/30, Unemployment & CPI 10/31, USD Data

Notes: The weekly opening range is pretty tight so far and we need more evidence that this key resistance level will hold, but my initial focus has been lower against 1.3830. Whether this will materialize into something more substantial remains to be seen, but in the meantime we will continue to let the weekly range develop before getting more seriously involved here. A breach above the highs targets trendline resistance, currently around 1.3850 and 1.3895. Note that the October opening range was bullish, and as such, I would not be surprised to close the month near the highs before making a more decisive move.

GBPUSD Daily Chart

Forex_USD_Setups_Bias_Heading_into_FOMC-_EUR_GBP_Cross_at_Resistance_body_GBPUSD_DAILY.png, USD Setups Heading into FOMC- EUR, GBP & Cross at Resistance

Technical Outlook (Unchanged)

  • Key support 1.5918 holds but rebound halts below October opening range high 1.6253
  • Breach eyes topside targets stacked at 09’ TL resistance, 1.6340 & 1.6380
  • Note divergence with EURUSD which already cleared monthly high
  • Daily RSI holding resistance- Topside trigger pending
  • Key Events Ahead: USD Data

Notes: We start off the week very similar to where we were last week. Focus remains on the October opening range high at 1.6253, a level which also coincides with the close high made on the first day of 2013 trade. Our near-term bias, “remain neutral-to-bearish on the pound below the opening rang high, with a breach opening up objectives at subsequent resistance targets.” Look for a crucial break below the 1.61-handle accompanied by a sub-50 break in daily momentum to offer further conviction on short exposure. Note the diverging price action with the EUR which has already cleared both its monthly and yearly highs.

EURGBP Daily Chart

Forex_USD_Setups_Bias_Heading_into_FOMC-_EUR_GBP_Cross_at_Resistance_body_EURGBP_DAILY.png, USD Setups Heading into FOMC- EUR, GBP & Cross at Resistance

Technical Outlook

  • EUR/GBP within well-defined ascending channel off October range low
  • Daily momentum remains constructive- short trigger pending
  • Interim resistance range 8530/50
  • Breach eyes resistance targets at 8600/11, 8675, 8708
  • Interim support 8500 / channel support, 8408

Notes: The aforementioned setups on the EURUSD & GBPUSD have put the EURGBP cross at an interesting juncture with the pair also testing a pivotal inflection region here between 8530-8550. While our broader outlook on the pair remains constructive, a near-term correction (aligning well with a more substantiated interruption of the EURUSD rally) would offer favorable long entries. Again here, don’t be surprised to close out October closer to the highs, with a breach eyeing our primary objective at 8600-8611.

Other Setups in Play:

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---Written by Michael Boutros, Currency Strategist with DailyFX

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