Talking Points:

- US Dollar bears have come back with gusto as the Greenback has made a push down to March support. Tomorrow brings March CPI numbers out of the United States and later in the day, we get meeting minutes from the Federal Reserve’s rate hike. Multiple drivers remain on the calendar around the US Dollar for this week, so we likely have not seen the end of USD-volatility.

- This Dollar drop has brought along bullish moves in both EUR/USD and GBP/USD; but noticeably missing from that Dollar-weakness was USD/JPY, which has found support at an area of prior resistance, keeping the door open for topside in the pair. For Yen-short plays away from USD, we looked into the long side of GBP/JPY yesterday.

- 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 Drops Extends to March Support

Yesterday we looked at the return of bearish price action in the Greenback as we opened up a fresh week, and today we look at continuation of that move as the US Dollar has now fallen by more than one-percent from the Friday highs. While one-percent may not sound like much, particularly for those coming from other asset classes – this is a one percent move over a couple of trading days in a non-levered currency. But perhaps most interesting is the consistency with which this bearish theme was priced-in, as price action has been on a bee-line lower, not even moving back to prior support before bears come-in to push-lower at fresh resistance.

US Dollar via ‘DXY’ Hourly Chart: Slammed Lower After NFP (Blue Box)

us dollar hourly chart

Chart prepared by James Stanley

The big question as we open up Tuesday’s US session is whether or not we’ll see support at some of the areas of interest from Q1. The zone of 89.40-89.57 was particularly interesting throughout the month of March, as this held as support for most of the period. That support was violated in latter-March, but as strength returned, that area had shown an element of resistance, thereby keeping it as an area of interest as we move deeper into April.

US Dollar via ‘DXY’ Four-Hour Chart: Prices Run Down to March Support

us dollar four hour chart

Chart prepared by James Stanley

If that short-term support from March cannot hold up our current declines, the door is opened for continuation of the longer-term bearish trend. This exposes the 88.42 level that had helped the Dollar to dig-out support in January and February of this year. This price is the 61.8% Fibonacci retracement of the 2014-2017 major move in the Dollar, and the 50% retracement of this same study helped to cauterize the lows in the Greenback in September. After we hit the 50% retracement, prices spent the next two months moving higher before bears came back to re-grab control. We hit the 61.8% retracement of this same study in January, and tested again in February; but, to date, the bullish response has been dampened as sellers have remained vigilant near short-term resistance.

US Dollar via ‘DXY’ Daily Chart: 50% Test Leads to Two Months of Strength, 61.8% Test Two Months of Range

us dollar daily chart

Chart prepared by James Stanley

EUR/USD Drives Higher After Nowotny Comments

FX traders have been looking for any clues, signs or signals of the ECB moving away from stimulus, and this has been a hot button topic for almost a year now. In April of last year, EUR/USD gapped-higher after the first round of French elections, and the pair never really looked back as the single currency surged for much of the rest of the year. This was driven by the thought that a stronger economic backdrop in Europe would allow for the ECB to, eventually, slow down and then walk away from stimulus and, at some point, start looking at higher rates.

This morning, markets received a clue around this theme, as ECB Governing Council Member Ewald Nowotny said that the ECB could lift the deposit rate to -.2% from the current -.4% to begin the process of normalization. This would be a 20 basis point hike, and markets were anticipating, at most 10 basis points of possible tightening. And despite the fact that markets are currently pricing that hike all the way out to the middle of next year, this simple signal was enough to elicit a bullish response in the single currency, and EUR/USD is trading-higher on the day.

We had looked at support in EUR/USD around the 1.2300 level, and after this morning’s comment the pair jumped up to a fresh two-week high of 1.2378, crossing past the zone of prior support/resistance that runs from 1.2335-1.2350.

EUR/USD Four-Hour Chart

us dollar four hour chart

Chart prepared by James Stanley

On a shorter-term basis, we now have fresh higher-highs and lows to work with, with the prior swing-low printing at 1.2300. The big question as we move into today’s price action is whether we see another instance of higher-low support, and given that prior zone of interest that runs from 1.2335-1.2350, there’s a very interesting area to watch for such a scenario.

EUR/USD Hourly Chart: Higher-Low Support Potential at Prior Zone of Resistance

eurusd hourly chart

Chart prepared by James Stanley

GBP/USD Continues Rally After Last Week’s 1.4000 Support Test

We’ve been following the bullish move in GBP/USD over the past few weeks, and that theme has gotten another push-higher this morning as prices are making a fast approach at March highs. On the hourly chart below, we’re looking at this bullish structure and the big question around the pair as we move deeper into Tuesday trade is whether we test the March highs before another pullback to support. There is possible short-term support at 1.4118, and below that, we have the intermediate-term zone that runs from 1.4067-1.4088.

GBP/USD Hourly Chart: Cable Bulls Push Towards March Highs

gbpusd hourly chart

Chart prepared by James Stanley

USD/JPY Continues to Carry Bullish Potential

Despite the nasty spill in the US Dollar so far this week, USD/JPY continues to carry bullish potential. We looked at a possible area of support yesterday that runs from 106.35-106.61. This was a prior area of resistance, and after the pair broke above this level, it became a potential area of support. Given the higher-lows that had showed-up last week, the possibility of bullish continuation remained, and after a quick test last night at the top of this zone, buyers have come back to push prices higher.

The big question around USD/JPY today is whether or not we can take out last week’s highs around 107.50. Doing so keeps the door open for bullish continuation.

USD/JPY Four-Hour Chart: Support at Top of Zone as Bullish Potential Remains

usdjpy four hour chart

Chart prepared by James Stanley

S&P 500 at a Big Area of Resistance

So far in 2018, matters have not been kind to equity bulls. After a rip-roaring rally to start the year, US equities have fallen into a pattern of concern; starting with a February sell-off that we still haven’t really recovered from. While it looked like bulls were close to taking back-over in late-February, resistance came in at the 76.4% Fibonacci retracement of the earlier-month sell-off, and bears have been rather active ever since.

US equity prices slalomed lower after the Fed’s rate hike in March, but eventually found some support at the 38.2% retracement of the post-Election move in the S&P 500. Since then, we’ve seen congestion in price action as both highs and lows have started to narrow. This gives us a wedge-like formation with the build of resistance around 2,650-2,677.

If this resistance is broken over the next couple of days, this could lead to a sharp topside move, targeting the 2,700 level that had offered a bit of support ahead of that March rate hike.

S&P 500 Four-Hour Chart: Build of Resistance as Price Action Narrows

usdjpy four-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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