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U.S. Dollar Rally Drives Forward as Euro Correction Continues

U.S. Dollar Rally Drives Forward as Euro Correction Continues

James Stanley, Senior Strategist

Talking Points:

- The U.S. Dollar is continuing-higher after last Friday’s check of longer-term support around Non-Farm Payrolls.

- IG Client Sentiment on EUR/USD is currently -2.11, and GBP/USD is -1.66. Given retail traders’ traditional contrarian nature, this would be bullish indications for both pairs.

- DailyFX Q1 Forecasts have recently been released: Click here for full access.

To receive James Stanley’s Analysis directly via email, please sign up here

In yesterday’s article, we looked at the U.S. Dollar extending gains after another check of support around last Friday’s Non-Farm Payrolls report. While prices closed below resistance last week, Dollar strength has continued into this week; and at this point, the Greenback is carving out fresh 2018 highs as buyers push prices higher. This opens up a host of interesting possibilities, as a couple of key U.S. data points loom on the calendar for Friday of this week. This is when we’ll get U.S. CPI and Retail Sales data, and this can be an opportune time for the U.S. Dollar to ‘put up or shut up’ regarding bullish potential for the remainder of the month.

On the hourly chart below, we’re focusing-in on this near-term trend and we’ve added a couple of potential support levels based on recent price action. Prior swing-high resistance from 92.35-92.40 could be an aggressive area to look for higher-low support, and a bit deeper, we have an area of prior resistance that syncs up with recent swing-low support, running from 91.21-91.26, and this could be interesting for bullish continuation on shorter-term charts:

U.S. Dollar via ‘DXY’ Hourly: Potential Support Zones Applied

U.S. Dollar Rally Drives Forward as Euro Correction Continues

Chart prepared by James Stanley

Longer-Term U.S. Dollar

On a longer-term basis, traders would likely want a bit more confirmation before assigning bullish biases to the Greenback. Current resistance is showing around the December swing-low that had printed on the first day of last month, so from the four-hour chart we still have a case of old support showing as current resistance.

U.S. Dollar via ‘DXY’ Four-Hour: December Swing-Low Helping to Set Current Resistance

U.S. Dollar Rally Drives Forward as Euro Correction Continues

Chart prepared by James Stanley

A sustained break above the 92.60 level in DXY would make the prospect of bullish continuation on a longer-term basis could look a bit more attractive, and this would be driven by the assumption that the range that’s shown in the Dollar since August of last year would be set to continue. This is what we were looking at in the Q1 Technical Forecast on the U.S. Dollar, and this is available from the following link: DailyFX Q1, 2018 Forecasts.

U.S. Dollar via ‘DXY’ Daily: Sideways Since August, 2017

U.S. Dollar Rally Drives Forward as Euro Correction Continues

Chart prepared by James Stanley

Euro Correction Continues

Last Friday we had a disappointing Non-Farm Payrolls report out of the United States when the headline number came-in at 148k versus the expectation of 190k. But earlier that morning we had another dose of disappointment from a different economy across the Atlantic: Core CPI out of the Euro-Zone for the month of December came in at .9% versus the expectation of 1.0% flat, and since then the Euro has been falling-lower. Yesterday, we looked at a couple of support zones around 1.1940 and another from 1.1837-1.1880. The first of those zones, at least up to this point, has not been able to exhibit support. This adds focus on that deeper zone of support that straddles the 1.1850 level, and there is also a trend-line projection that runs through this area on the chart.

For those that are looking at taking on bullish exposure in EUR/USD, a revisit to that trend-line can be an attractive thesis for looking to trigger long positions, as this could allow topside entries in a rather risk-efficient fashion.

EUR/USD Four-Hour: Correction Continues, Support Potential 1.1837-1.1880

U.S. Dollar Rally Drives Forward as Euro Correction Continues

Chart prepared by James Stanley

GBP/USD

We discussed GBP/USD yesterday in our technical article, Strong 2017 Close Keeps Door Open for Sterling Strength. At the time, GBP/USD was trading near short-term resistance around 1.3585, and we zoned-in on a potential area of support straddling the 1.3500 psychological level. With this continuation of USD-strength, GBP/USD has sunk into this zone, and at this point, it’s a game of patience to confirm that buyers are, in-fact, responding around this psychological level. Confirmed support in this zone, particularly if support respects the prior swing-low of 1.3493, the door is opened to topside setups in the pair, looking to play the short-term range in the direction of the longer-term trend.

GBP/USD Hourly: Testing the Support Zone Around 1.3500 Psychological Level

U.S. Dollar Rally Drives Forward as Euro Correction Continues

Chart prepared by James Stanley

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

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