Talking Points:

- The US Dollar rally continues as the Greenback has now gained 5.5% from the February lows. What started as a short-squeeze/bear flag scenario has continued to run, and DXY is now approaching some longer-term levels of potential resistance. This has come along with a move in EUR/USD that has propelled the pair to fresh lows, and GBP/USD is in the process of grinding at the prior 2018 swing-low, set around the key level of 1.3500.

- The remainder of today’s calendar is rather light, as is the early portion of tomorrow’s. Tomorrow afternoon/early Thursday morning in New Zealand brings an RBNZ rate decision, and Thursday brings the Bank of England ‘Super Thursday’ along with US CPI for the month of April. Each of these drivers could take on relevance this week, and below we look at setups surrounding all three.

- DailyFX Forecasts have been updated for Q2, and are available from the DailyFX Trading Guides page. If you’re 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.

US Dollar to Fresh 2018 Highs, Again

The US Dollar has continued to rally and as we open Tuesday trade out of the US, the currency remains at fresh 2018 highs. We had some commentary from Fed Chair Jerome Powell earlier this morning taken from a speech in Zurich. He had a couple of interesting comments, key of which was remarking that he felt that the role of US monetary policy in driving global capital flows was often exaggerated. He also went on to say that ‘some investors and institutions may not be well positioned for a rise in interest rates, even one that markets broadly anticipate.’ This seemed to imply that there will never be a ‘perfect’ time to hike rates, and this denotes the potential for continued hawkishness at the world’s largest Central bank.

All in all, that speech had a hawkish overtone very similar to what we’ve seen from Mr. Powell so far this year after taking over the reins of the bank in February. This was around the same time that the US Dollar began to carve-out a bottom around 88.42, which is the 61.8% Fibonacci retracement of the 2014-2017 major move. After that support came into play, prices oscillated back-and-forth for a couple of months before buyers eventually took control. And what started as a bear flag/short-squeeze scenario just has not stopped for three weeks, and here we are 5.5% higher in the US Dollar index from those February lows. At this point, we can begin to ask the question of whether or not the US Dollar down-trend has finally come to an end after what was an aggressive fourteen months of selling.

US Dollar via ‘DXY’ Weekly Chart: Has the US Dollar Down-Trend ‘Met its Maker’?

us dollar weekly chart

Chart prepared by James Stanley

To get more clarity behind that question, we can focus in on that recent down-trend by adding a Fibonacci retracement. This will help to highlight that while the past few weeks have seen an aggressively-strong US Dollar, we’ve still only retraced a small portion of that prior sell-off. We’ve added that retracement on the below chart in green, and this helps to show how we’ve yet to approach the 38.2% retracement of that prior bearish move. That 38.2% level comes-in very near the 38.2% retracement of the 2014-2017 major move, so this would be a confluent area of potential resistance around 94.30 should the run in USD continue. That area is outlined with a red box on the below chart.

US Dollar Daily Chart: Potential Resistance Applied

US Dollar Daily Chart

Chart prepared by James Stanley

EUR/USD Breakdown Continues

One of the more interesting USD-pairs at the moment is EUR/USD, as sellers remain in-control while pushing prices down to fresh 2018 lows. We looked at a few support levels yesterday, and prices have made a quick move down towards the ‘s1’ level around 1.1853, but bigger picture – where might traders be able to look for longer-term support? After a breach of the vaulted 1.2000 level, bulls have shown little ability to stem the flow of sellers; and this highlights a potential zone that came into play multiple times in the second half of last year. This area runs from 1.1685-1.1736, and this is a confluent area taken from a couple of different longer-term Fibonacci retracements.

EUR/USD Weekly Chart: Confluent Support Below

eurusdd weekly chart

Chart prepared by James Stanley

GBP/USD Runs into 1.3500 Support – But Can it Hold?

While selling in the Euro has been fairly pronounced over the past couple of weeks, the reversal in GBP/USD has been arguably more relevant given the scope of how the move came-in. What started as an aggressively bullish breakout as we came into April posed a stark turn-around along with an even more aggressive bearish reversal that carried through the end of the month. That short-side move has continued into May, and as we move deeper into the second week of the month, GBP/USD is grinding at a level with a bit of historical importance in GBP/USD.

The 1.3500 psychological level helped to hold the low on the pair from the Financial Collapse into the Brexit referendum. Even after Brexit, this level came-up as a quick swing-high before the ‘flash crash’ saw the currency plunge down to 30-year lows. But the relevancy of this level isn’t relegated to antiquated observations, as this area also helped to mark the high in GBP/USD in Q4 of last year, as this level shows right around the 50% retracement of the ‘Brexit move’ in the pair.

GBP/USD Weekly Chart: 1.3500 a Familiar Level of Relevance for GBP/USD

Please add a description for the image.

Chart prepared by James Stanley

At this stage, the bearish move in GBP/USD has become oversold on the Daily chart, and prices are back to testing 1.3500 after a quick bounce showed on Friday and led into Monday. With a BoE rate decision on the docket for later this week, the pair is likely to remain volatile as we trade through this week, and this opens the door to the possibility of reversal setups, particularly should this level or area of support continue to hold. We looked at such a setup yesterday in an Analyst Pick, along with a short-side NZD/USD entry order as a hedge designed in the event that USD strength continued in a rather rampant manner.

GBP/USD Daily Chart: Oversold Cable Grinds at Support Ahead of BoE ‘Super Thursday’

gbpusd daily chart

Chart prepared by James Stanley

NZD/USD For USD-Strength Continuation

We’ve been following the short-side of NZD/USD for strategies around USD-strength, and we looked at another setup in yesterday’s analyst pick that went along with the GBP/USD setup. The logic was for a short-side breakout entry on print of fresh lows, targeting the support side of a longer-term range that’s been in-play for almost two years now. A break below the big figure of .7000 opens the door for a deeper run towards longer-term range support of .6820-.6870.

NZD/USD Weekly Chart: Range Fill Targets .6820-.6870

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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