Talking Points:

- US Stocks showed a bit of recovery in the latter-portion of yesterday’s session, but those gains could not hold as Fibonacci resistance came-in after the US close, and the S&P 500 is moving right back towards the Monday low. This exposes the double bottom from the February sell-off around 2,530, and if that cannot hold up on a re-test, the door is opened to bearish breakouts in the S&P 500. We discussed this in yesterday’s webinar, which is available from the following link: S&P 500 Starts Q2 on a Sour Note as EUR/USD Tests Support.

- For all of the cross-market fireworks currencies have been rather tame, and this could be a good thing for a trader as support and resistance has largely remained respected up to this point. Below, we look into a few of the more popular areas by looking at the range in the US Dollar, the build of support in EUR/USD and some resistance areas around USD/JPY. Of particular note is the support-build in EUR/USD this morning after a disappointing set of inflation numbers were released. The fact that bulls came in to show higher-low support helps to highlight the continued topside potential in the pair.

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

EUR/USD Holds Support After Core Inflation Misses Expectations

EUR/USD is holding on to support after a slightly disappointing release of March inflation numbers. Headline inflation printed in-line at 1.4% for the Euro-Zone in March, and core inflation came in just a touch below the expectation, coming in at one-percent flat versus an expectation for a 1.1% print. Despite the disappointment, EUR/USD was unable to encroach upon yesterday’s low which remained above the March swing-low, and this keeps the door open for topside plays in the pair as we move towards Friday’s release of Non-Farm Payrolls numbers.

EUR/USD Hourly Chart: Bounce Around Inflation Numbers, Bears Unable to Take-Out Lows

eurusd hourly chart

Chart prepared by James Stanley

Yen as the Euro 2.0?

Notable here is how Japan is now seeing inflation at a faster pace than Europe. Japanese inflation came-in at 1.5% in February while Europe saw that 1.4% print in March. We’ll have to wait to get March inflation figures out of Japan, but this is something that can build-in to further Yen gains as we move deeper into the year. While most of 2017 was spent with markets debating the timing of a European stimulus exit, with the Euro gaining for most of the year as being driven by this expectation - it appears that the Bank of Japan will have some very legitimate questions to answer around how/why/for how long QE might run in the face of this rising inflationary pressure showing around the island economy.

S&P Late Session Rally Hits Fibonacci Resistance

Yesterday’s US session saw the Fibonacci support level around 2554 hold the lows in the S&P, and a late session rally quickly pushed prices back above 2600. But, that strength was unable to hold and after the US close, a downdraft started in S&P futures that hadn’t slowed down until this morning. At this point, we’ve seen a bit of support develop above the Monday low; but it’s still far too early to call ‘game over’ on the bearish drive, as the current bounce could still very much be corrective in nature.

The big question around the S&P today is one of reference: Are we going to get a fresh higher-high or lower-low to work with? Either can help give traders directional clues for the remainder of this week as we walk towards jobs numbers on Friday. At this stage, we’re looking at continued bearish structure with another lower-high coming-in. That lower-high printed right around the 23.6% retracement of the February sell-off, and this exposes the 2,530 level that we looked at yesterday.

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S&P 500 Four-Hour Chart: Yesterday’s Rally Runs into 23.6% Fibonacci Resistance

S&P 500 four-hour chart

Chart prepared by James Stanley

US Dollar Price Action Continues to Compress

For all of the excitement in stocks, currencies remain rather tame by comparison. The US Dollar continues to oscillate around the 90.00 level on DXY; but the fact that we haven’t seen a return towards lows around 89.50 or below could be deductively bullish, at least on a near-term basis. This has been a very, very heavily shorted trend over the past year, and the past couple of weeks have seen a compression of volatility. On the chart below, we can see that expanding range that had shown through February and early-March giving way to a narrowing of price action. This type of compression can often lead to a big move in one direction or the other.

US Dollar Four-Hour Chart: Expanding Range Gives Way to a Compression of Price Action

US Dollar four-hour chart

Chart prepared by James Stanley

For those looking to gain directional hues from this compression, there could be a bullish case to be made as yesterday saw prices struggle to move above a descending trend-line, and at this point, we’ve seen a bit of support showing around this prior point of resistance. It’s sloppy, and it’s still very early, but it’s there for those looking to glean clues from what’s shown up so far this week.

US Dollar Four-Hour Chart: Bulls Struggle But Able to Hold Support For Now

us dollar four hour chart

Chart prepared by James Stanley

EUR/USD Digs at Range Support as 2017 Bullish Trend-Line Nears

EUR/USD continues to work within the near-term range in relevance to the longer-term bullish trend. The notable item here was a long-legged Doji that showed up this morning after a test of near-term lows. Bulls have been able to hold the line up to this point, and we continue to trade just about 50 pips off of the March lows in the pair.

EUR/USD Four-Hour Chart: February/March Range Continues

eurusd four hour chart

Chart prepared by James Stanley

This keeps the door open for the long side of EUR/USD as one of the more attractive ways to look for USD-weakness. This could also be a setup that gets quite a bit more attractive should a quick spate of USD-strength help to propel EUR/USD into the longer-term zone of support that runs between 1.2167-1.2235.

In terms of near-term price action, the bullish trend-line from last year’s run in the pair is fast approaching; and if we’re going to hold here, support would need to show very quickly, as this trend-line currently projects to just below the 1.2250 area on the charts, just below this morning’s low.

Do you want to see how retail traders are currently trading EUR/USD? Check out our IG Client Sentiment Indicator.

EUR/USD Daily Chart: 2018 Range Nears 2017 Bullish Trend-Line

eurusd daily chart

Chart prepared by James Stanley

USD/JPY Tests Channel Resistance – Beware of Higher-Low

USD/JPY put in another test of channel resistance yesterday, at which point bears came in to push prices-lower. This helps the pair to retain its down-trend appeal, but those looking to operate on the short-side of USD/JPY will likely want to take into account what appears to be the build of short-term bullish structure.

USD/JPY Four-Hour Chart: Another Hit of Trend-Line Resistance – But Beware the Higher-Lows

usdjpy four hour chart

Chart prepared by James Stanley

Given how strong that move on the short-side of USD/JPY has been so far this year, and a bit of retracement could not only make some sense, but it could also make the prospect of a prolonged move-lower a bit more attractive, as the short-side of this trade has started to feel stretched over the past couple of weeks. The big question, at that point, is where might longer-term lower-high resistance begin to show?

We’ve added two levels of interest for such a scenario on the below chart, each of which are derived from areas of 2017 price action that have had some element of pull already in 2018.

Do you want to see how retail traders are currently trading USD/JPY? Check out our IG Client Sentiment Indicator.

USD/JPY Eight-Hour Chart: Deeper Resistance Potential 107.32, 108.27

usdjpy eight-hour 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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