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U.S. Dollar Bid to Start Q4, but Will a Continuation of Strength Follow?

U.S. Dollar Bid to Start Q4, but Will a Continuation of Strength Follow?

James Stanley, Senior Strategist

Talking Points:

- The U.S. Dollar is moving-higher to start the fourth quarter of the year, and a busy economic docket in the second half of the week can keep USD on the move. Non-Farm Payrolls takes place this Friday.

- The DailyFX Q4 Forecasts have just been released, and if you’d like to see a preview and/or request the full version, please click here.

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The U.S. Dollar has started Q4 on a positive foot with a respectable showing on the first trading day of the quarter after a very rough start to 2017. That strength from yesterday lasted into the overnight session, at which point DXY made a quick attempt to test the August highs, but was met with seller resistance before the zone around 94 could come into play.

U.S. Dollar via ‘DXY’ Daily: Strong Start to Q4, Resistance Shows in Overnight Session

U.S. Dollar Bid to Start Q4, but Will a Continuation of Strength Follow?

Chart prepared by James Stanley

On a shorter-term four-hour chart, we can see where Dollar bulls are trying to string together a test of that resistance around the 94-level. This is accented by a series of higher-highs and higher-lows that have developed over the past few weeks, and this helps to highlight how short-term support is beginning to show around prior resistance.

This could foreseeably become a bigger-picture move of USD-strength, but support structure above the 93.00 level would need to hold long enough for buyers to push prices in that area that runs from 94.08-94.30. If support at 93 cannot hold, we’re likely looking at another run of USD-weakness with an eventual re-test of the lows.

U.S. Dollar via ‘DXY’ Four-Hour: Support Structure, Break-Below 93 Opens Door for Deeper Losses

U.S. Dollar Bid to Start Q4, but Will a Continuation of Strength Follow?

Chart prepared by James Stanley

EUR/USD Support Test

Going along with that quick move of USD-strength, we can see EUR/USD dipping within the support zone that runs from 1.1685-1.1736, at which point buyers stepped-in to offer a bit of support. If we do see USD-weakness take-over, the topside of EUR/USD would likely remain as attractive as we head towards a key ECB meeting later in October.

U.S. Dollar Bid to Start Q4, but Will a Continuation of Strength Follow?

Chart prepared by James Stanley

The shorter-term charts of EUR/USD have yet to reflect a bullish trend. As we can see on the chart below, prices have put in a respectable bounce off of support around 1.1700, but at this stage, we have yet to take-out the prior swing-high, and until we do, the trend on this hourly chart reflects bearish price action.

On the hourly chart below, we’ve added three resistance levels to the topside of EUR/USD’s price action. If we can get a break above 1.1763 that opens the door for secondary resistance around 1.1794, at which point higher-low support could be sought around the current zone of resistance. This can allow for stops to be placed under the ‘big picture’ zone of support, with eyes on bullish continuation of the longer-term trend.

EUR/USD Hourly: Resistance Breaks to Denote Bullish Continuation Potential of Longer-Term Trend

U.S. Dollar Bid to Start Q4, but Will a Continuation of Strength Follow?

Chart prepared by James Stanley

Cable Consolidates at Support

Also in the realm of pullbacks we have the recent move seen in the British Pound. After the BoE meeting in early-September, GBP broke-out as traders hurriedly attempted to get in-front of any potential rate hikes out of the U.K. This allowed GBP/USD to surge all the way up towards 1.3600 after having tested below 1.2800 just a month earlier.

But since that fresh high came in above 1.3600, GBP/USD has had difficulty mustering buyers. First, we saw support hold at 1.3478 for a little over a week; and then prices moved down to test a secondary support zone that runs from 1.3321-1.3350. That held for a few days, but the USD strength to open this week drove prices below that zone and towards our third zone of support that runs from 1.3217-1.3250. The relevance of these support levels is taken from the fact that they exist above a longer-term zone of support that runs from 1.3117-1.3187, and as long as price action remains above here, the bigger-picture bullish theme can remain as attractive.

GBP/USD Four-Hour: Support Zone Test 1.3217-1.3250

U.S. Dollar Bid to Start Q4, but Will a Continuation of Strength Follow?

Chart prepared by James Stanley

From the shorter-term hourly chart below, we can see the succession of lower-highs and lower-lows. A low was set about ten pips above the bottom of the support zone in the overnight session; and for bullish plays, traders would likely want to let price break-through swing-high resistance at 1.3290 before entertaining strategies designed to get long in the direction of the bigger-picture trend.

GBP/USD Hourly: Bearish Price Action Attempts to Cauterize Support

U.S. Dollar Bid to Start Q4, but Will a Continuation of Strength Follow?

Chart prepared by James Stanley

On the bullish side of the U.S. Dollar, we’ve been following USD/JPY. USD/JPY put in a rather bullish week to finish Q3, and since then has seen topside price action continue higher. This included a rather key break of a widely-watched resistance zone that runs from 111.61-112.43, after which buyers used this prior area of resistance to establish fresh support. To open this week, we’ve seen the build of resistance around the 113.21-level.

USD/JPY Four-Hour: Are Bulls Running Out of Steam? Resistance Shows Around 113.21

U.S. Dollar Bid to Start Q4, but Will a Continuation of Strength Follow?

Chart prepared by James Stanley

Looking at shorter-term charts, we can see where bulls have continually stepped-in at higher-lows, giving us an ascending wedge formation. This type of digestion can often prelude a breakout, and given the pace of the recent higher-lows, if a trader is going to assign a bias to such a digestion setup, it will often be in that direction (bullish). This also opens up a couple of key support areas to watch for the bullish continuation trade in USD/JPY, as we look at below.

USD/JPY Hourly: Short-Term Ascending Wedge After Test of 113.21 Resistance

U.S. Dollar Bid to Start Q4, but Will a Continuation of Strength Follow?

Chart prepared by James Stanley

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

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