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USD/JPY, GBP/USD, DXY Nearing Pivotal Support Zones

USD/JPY, GBP/USD, DXY Nearing Pivotal Support Zones

2017-01-18 13:45:00
James Stanley, Strategist
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Talking Points:

- The U.S. Dollar retracement continues, but we’re nearing an area of support that was resistance on the Greenback through much of 2015.

- This recent retracement in the U.S. Dollar has led-to possible reversal scenarios in GBP/USD and a potential continuation-setup in USD/JPY. Below, we look at both.

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USD: Long-Term Bullish, Short-Term Bearish

In yesterday’s article we looked at the tenuous state of near-term price action in the Greenback. After the near-historic run sparked after the U.S. Presidential Election, the U.S. Dollar had little pullback or movement-lower. But after the open of the New Year, that pullback began and hasn’t yet stopped. After Donald Trump talked down the ‘strong dollar strategy’ in an interview yesterday, combined with this recent bout of weakness –and many are questioning the sustainability of a long-term run of strength in the U.S. Dollar. But the longer-term setup is still bullish, as the Daily chart of the U.S. Dollar is catching current support off of a zone of prior resistance around the 100-level.

USD/JPY, GBP/USD, DXY Nearing Pivotal Support Zones

Chart prepared by James Stanley

Short-term price action on the Greenback does not suggest yet that we’ve bottomed out. Below, we take a look at the hourly chart along with the recent bout of ‘lower-lows’ and ‘lower-highs’ that have shown-up.

USD/JPY, GBP/USD, DXY Nearing Pivotal Support Zones

Chart prepared by James Stanley

USD/JPY – Nearing a Big Zone of Support

When the Trump-Trade took over markets in November and through the end of the year, one of the highest-flying vehicles was USD/JPY. After spending much of the summer with price action grinding near the 100-level on the pair, the Donald Trump election and ensuing rally drove the pair-higher by more than 1,700 pips in a little over a month. But since the U.S. Dollar retracement has gotten underway, price action in USD/JPY has weakened and begun to move-lower; and this is getting many traders to try to trade a short-term reversal of bearish price action into the direction of the longer-term, bullish trend.

For such efforts, traders will likely want to stay apprised of what looks to be a huge zone of support currently sitting just underneath price action. Within an approximate 80-pip zone on USD/JPY, we have three different Fibonacci retracement levels, including the 38.2% retracement of the post-Election move.

USD/JPY, GBP/USD, DXY Nearing Pivotal Support Zones

Chart prepared by James Stanley

GBP/USD – Moving Back Down, but is the Bear Back for Good?

Yesterday brought-on the largest rally seen in the British Pound in over two years after Theresa May’s Brexit speech. What was largely accused of being a short-squeeze saw price action jump through multiple points of prior resistance as the British Pound poked through the 1.2400 level after having been below 1.2000 not more than two days prior.

But since then, that bullish move has begun to retrace and questions-abound about whether or not the bearish trend is back in the pair. Traders looking to trade continuation of the bearish move will likely want to wait for some element of confirmation of such as yesterday’s move was noteworthy in the fact that sellers relented at the prior area of resistance at 1.2300.

For traders looking to determine near-term directional stance on the Cable, they’ll likely want to observe price action behavior near a big zone of potential support between 1.2200-1.2250. This zone had offered multiple prior price action swings, as well as comprising both the 23.6% and 38.2% Fibonacci retracements of this week’s bullish move.

If we break below this zone – there is little reason to be bullish as uncertainty would’ve taken over price action in the British Pound again.

USD/JPY, GBP/USD, DXY Nearing Pivotal Support Zones

Chart prepared by James Stanley

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

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