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EUR/USD, GBP/USD Test Support; USD Jumps to 90.00 as Quarter-End Nears

EUR/USD, GBP/USD Test Support; USD Jumps to 90.00 as Quarter-End Nears

James Stanley, Senior Strategist

Talking Points:

- The US Dollar has been on the move, marked by a strong run during yesterday’s US session that saw DXY re-ascend above the 90.00 level. But bulls have not been able to make much ground since resistance came-in around 2:00 PM ET yesterday, and price action is oscillating around the 90.00 level as a bit of pressure began to show during the Asian session and then again around the European open.

- With many markets closed tomorrow in observance of Good Friday, today is the effective end of the first quarter of 2018. It’s been an eventful period, both in markets and geopolitics, and Q2 is shaping up to be quite interesting as we’re looking for rate hikes out of the UK with another possible move out of the US in June.

- Are you looking to improve your trading approach? Check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

Dollar Bulls Show Up As End of Q1 Nears

While equities were on the move earlier in the week with currencies taking a back seat to the action, the roles reversed yesterday as the US Dollar shot-higher while the S&P 500 meandered within a range. The big item over the past 24 hours was a jump of USD strength as DXY rallied back-above the 90.00 level. This strength started to show just ahead of the release of the final read of 4Q GDP numbers out of the US, which were revised higher by quite a bit as we saw that 2.5% number nudged up to the final read of 2.9%.

US Dollar via ‘DXY’ Four-Hour Chart: Jump to 90.00 Finds Sellers as Resistance Sets In

us dollar four hour chart

Chart prepared by James Stanley

Many are looking for reasons behind such an aggressive counter-trend rally, and while reasons are dangerous for traders, the combination of that GDP print combined with the fact that we’re nearing the end of Q1 means that we were likely seeing some element of quarter-end flows driving a counter-trend rally. This could equate to a short-squeeze type of scenario as near-term USD strength adds pressure to existing shorts, creating further bullish demand as those shorts cover-up ahead of the end of the quarter.

But – this is not meant to nullify the move. The jump-higher happened, and this is something that traders would need to accept regardless of their stance or opinion or ‘feeling’ around the sustainability of USD-strength. This does, however, open up a series of interesting possibilities for those that are looking to trade US Dollar weakness as we near the open of Q2; and for those looking to work with a continuation of USD strength in the event that it actually happens, we look at a short-side setup in NZD/USD at the very bottom of this article.

USD/JPY Tests Lower-High Resistance

One of the more responsive pairs to yesterday’s US Dollar strength was USD/JPY. This has been a fairly strong trend already in 2018, and we’ve seen multiple long-term support levels give way or take on additional tests. Just last week we saw a fresh 16-month low print when the pair drove down to find support around 104.61.

But as we opened this week, strength began to slowly show-up, and after yesterday’s bullish run in USD, USD/JPY bounced directly up to a descending trend-line.

The big question here is whether the bearish run in the pair is dead. Perhaps it is, but if we put this move in scope, the argument for bearish continuation remains compelling: This is a trend that’s been going for a few months now, and there’s a very requisite reason as to why as Japanese inflation has continued to grow closer to the BoJ’s 2% target. And while yesterday’s move did show considerable strength, we’re at quarter-end, and this could certainly have been a short-squeeze type of scenario as we move to close out the period.

Regardless of the reason – the ‘what’ here is most important, and that’s the fact that USD/JPY has held resistance around this trend-line since it started to come into play yesterday. This continues the sequence of lower-lows and lower-highs, and this keeps the door open for short-side continuation of that intermediate-term bearish trend.

USD/JPY Four-Hour Chart: Yesterday’s Rallied Tempered at Trend-Line Resistance

usdjpy four hour chart

Chart prepared by James Stanley

Is Bullish Continuation Possible in USD/JPY?

It is, although traders would likely want to take into account the possibility of this being a short-term squeeze type of move before the end of the quarter. The bullish outlook would basically be looking for this shorter-term theme of strength to roll over the longer-term theme of weakness. Prices have rallied by approximately 240 pips from last week’s low up to this week’s high, and if this move does have continuation potential, we’re likely going to want to look for some higher-low support. A Fibonacci retracement has been added to that shorter-term move below, and this would highlight levels around 106.09 and 105.80 for such an approach. We’re currently seeing a second test of support at the 23.6% retracement, and this level may not hold for too much longer.

USD/JPY Hourly Chart: Support Potential for Bullish Continuation of Short-Term Move

usdjpy hourly chart

Chart prepared by James Stanley

EUR/USD Catches Support Around 1.2300

Also moving along with yesterday’s USD strength was a deeper pullback in EUR/USD. We were following a zone of support in the pair at a confluent area, around 1.2335-1.2350, and when this came into play yesterday, I published an Analyst Pick around the setup. Prices dropped below that zone, and found a bit of secondary support around the psychological 1.2300-level and that’s held since yesterday. That support has held up through multiple tests, but this has not been a one-way show, as resistance has continued to show-up underneath that support zone that we were following yesterday.

EUR/USD Hourly Chart: Support at 1.2300, Resistance at Prior Support Area 1.2335-1.2350

eurusd hourly chart

Chart prepared by James Stanley

On a slightly longer-term basis, this does present a compelling scenario around EUR/USD. Price action in the pair has been largely range-bound since the bullish continuation in early-January. Despite the multiple shorter-term trends that have developed inside of this longer-term range, price action since mid-January has largely been back-and-forth, and there’s been a penchant for buyers to show up around currently levels.

EUR/USD Four-Hour Chart: 1.2300 Becoming a Familiar Level

eurusd four hour chart

Chart prepared by James Stanley

GBP/USD Finds Another Trend-Line

We’ve been following GBP/USD over the past few weeks as bullish price action has started to show on shorter-term charts, giving the appearance that the longer-term up-trend may be on its way back into markets. Yesterday’s Dollar-strength helped GBP/USD pull back from an earlier week breakout, and a bit of support has started to show around a familiar level of 1.4067. This level also intersects with a trend-line that can be found by connecting the lows in the pair from the past few weeks.

GBP/USD Four-Hour Chart: Pullback Finds Trend-Line Support

gbpusd four hour chart

Chart prepared by James Stanley

As we discussed yesterday, this current support area is becoming a rather pensive zone. This does keep the door open for topside setups of a shorter-term variety, but the more interesting aspect of GBP/USD at the moment is the possibility of the longer-term trend finding a boost of continuation.

On the chart below, we’re looking at the bullish channel in GBP/USD that’s been going for over a year now, and notice where this morning’s support is showing off of the mid-line of that channel. This same mid-line has been functional since February, first as support and then as resistance as we opened up into March.

GBP/USD Daily Chart: Mid-Line Channel Support

gbpusd daily chart

Chart prepared by James Stanley

For a Continuation of USD-Strength, Look to NZD/USD

For those looking at bullish continuation in the Greenback, NZD/USD could remain as attractive. The pair is in the process of moving off of a longer-term area of resistance as the pair’s been range-bound for well over a year now. The level of .7335 has helped to demarcate a zone of resistance, and prices have battled there for the past few weeks, with another hit of resistance two weeks ago before prices started to tilt back-below the .7200 area.

For those looking at a continuation of USD-strength, the prospect of range-fill in NZD/USD could be extremely attractive, looking for tests of the .7000 psychological level and then perhaps even a drive down towards .6820-.6850.

NZD/USD Weekly Chart: Moving Off of Long-Term Zone of Resistance

nzdusd weekly chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

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

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

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