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U.S. Dollar at Support: USD/CAD, GBP/USD with Reversal Potential

U.S. Dollar at Support: USD/CAD, GBP/USD with Reversal Potential

2017-01-23 14:04:00
James Stanley, Strategist
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Talking Points:

- While the U.S. Dollar’s longer-term up-trend remains in-tact, the past few weeks have seen the currency continue to pull-back, now retracing more than 38.2% of the ‘Trump Trade.’

- GBP/USD has run-up to a fresh 2017 year high a day ahead of a widely-awaited UK Supreme Court ruling on whether Theresa May needs parliamentary approval to trigger Article 50. A ruling is expected tomorrow, and this could keep GBP volatile for the foreseeable.

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Dollar Drops to Support After Trump Inauguration

Judging by the combination of weekend news and recent price action, the Donald Trump inauguration speech was not as well-received as the victory speech on the night of the election. While President Trump’s victory speech on the evening of November 8th evoked reversals across U.S. markets, futures contracts on equities and the U.S. Dollar included, Friday’s inauguration speech did little to motivate price action as the U.S. Dollar simply slid back-down to support.

The major difference between the two speeches was focus: In November, President Trump talked of infrastructure spending and fiscal stimulus. On Friday, the central theme was ‘America First.’ The change-in-focus could very much be to blame, but more proactively this varied message does not denote to markets or investors that anything has changed. So the longer-term bullish structure in the Greenback remains, but short-term price action is finding support at a level of prior resistance, around 100 on DXY.

U.S. Dollar at Support: USD/CAD, GBP/USD with Reversal Potential

Chart prepared by James Stanley

Below, we look at the 4-hour chart with a heavier-focus on this recent pullback. A Fibonacci retracement has been applied to the ‘Trump Move’ in the Dollar, taking the lows of election night up to the high set just a few weeks ago. The 50% retracement of this move is at .9985, and this makes up the bottom-portion of a support zone that could be pivotal for this week’s price action.

U.S. Dollar at Support: USD/CAD, GBP/USD with Reversal Potential

Chart prepared by James Stanley

British Pound Pops to Fresh 2017 High – UK Supreme Court Ruling to Keep GBP Volatile

Last week brought the widely-awaited Brexit speech from PM Theresa May (and U.K. inflation), and the net-impact has strength into the British Pound, aided at least in-part by that recent dash of weakness in the Greenback. But we’re not done on the news from out of the U.K. just yet:

Tuesday brings a widely-watched ruling from the UK’s Supreme Court, in which the question of parliamentary approval on triggering Article 50 will finally be decided. A vote against the government’s appeal would mean that Theresa May would need to go to parliament for the ‘ok’ before triggering Article 50 with the European Union. This can keep the British Pound volatile for the remainder of the week, and traders would likely want to approach any ‘trend-continuation’ themes with extreme caution, as any prevailing trends could be quickly interrupted.

On the 4-hour chart below, we’re looking at GBP/USD after the December rate hike kicked-off a down-trend that continued until last week. Theresa May’s Brexit speech helped to break-out of this trend-channel, and this recent kick-lower in the Greenback has helped to bring Sterling to a fresh 2017 high.

U.S. Dollar at Support: USD/CAD, GBP/USD with Reversal Potential

Chart prepared by James Stanley

USD/CAD – Reversal or Retracement?

One of the biggest movers of last week, and last year as well, has been the Canadian Dollar. The point-of-interest is the prospect of monetary stimulus, at some point out of the Bank of Canada. And while any timelines are unclear, the simple prospect that this is even being discussed or debated can help to drive Cad-weakness as the U.S. Dollar remains, relatively strong on a longer-term basis.

On the chart below, we’re looking at the aggressive ‘reversal-move’ in USDCAD last week. But notice that short-term resistance has shown-up at a trend-line that had previously functioned as support, and this happened shortly after short-term price action had just set a fresh ‘lower-low’; so we still may be seeing a longer-term bearish price action in USD/CAD. For those looking at bullish continuation in the pair, awaiting a top-side break of this trend-line could signal the potential for further gains.

U.S. Dollar at Support: USD/CAD, GBP/USD with Reversal Potential

Chart prepared by James Stanley

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

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Contact and follow James on Twitter: @JStanleyFX

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