Talking Points:

- The US Dollar is softening a bit after a failed test at the 11-month high earlier this morning around the European open. The potential for continued pullback remains as we move into the last couple of trading days ahead of the end of Q2; but complicating that premise is the fact that we have quite a few high-impact drivers remaining on the economic calendar for tomorrow.

- Equities remain under pressure after a flare of strength yesterday was soundly faded out of the market. In the Dow Jones Industrial Average, prices are approaching a key element of chart support as derived from a trend-line taken from swing lows in February, April and again in March. This could present interesting reversal ideas as we move into Q3; and if the selling pressure does persist, a break below the February low could usher in the prospect of longer-term bearish strategies in the blue-chip index.

- DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro 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 Pulls Back After Failed Attempt to Take-Out 11-Month Highs

The support zone that we looked at earlier in the week in the US Dollar has continued to play out as prices have moved right back to testing the prior 2018 highs that were set last week. As we wind down the second quarter of the year, a bit of trepidation has started to show as buyers lost a bit of enthusiasm as we re-tested those prior highs, but the bullish theme very much remains after the US Dollar has bounced by as much as 1.45% so far this week.

US Dollar Daily Chart: Short-Term Pullback After Failed Test of 11-Month Highs

US Dollar usd Daily Chart

Chart prepared by James Stanley

Given that we’re approaching the end of a quarter in which US Dollar strength took over as one of the more noticeable FX themes, and we could see a bit of pullback here as we move towards Q3. Profit taking from strong trends can often produce counter-trend movements as we trade into a quarter-end type of scenario; but the big x-factor here is the remaining data on the calendar, as we have a series of reports on the economic calendar for tomorrow that could continue to drive price action. Shortly after the open of the European session, we get German unemployment numbers, as this is followed by Euro-Zone inflation numbers set to be released at 5:00 AM ET. We then get CAD GDP for April along with the Fed’s preferred inflation gauge of PCE to be released at 8:30 AM ET. And later on Friday, after US and European markets have closed for the weekend, we get a Chinese Manufacturing PMI that could receive considerable attention after the volatility that’s started to show in Chinese markets.

DailyFX Economic Calendar: Not a Quiet End to Q2 as Multiple High-Impact Reports Remain

DailyFX Economic Calendar High Impact Events for June 29, 2018

Chart prepared by James Stanley

Potential Pullback Levels in the US Dollar

Given the backdrop that we currently have, with what’s become a really bullish US Dollar showing a bit of trepidation at those previously-established 11-month highs, and we may be looking at a deeper pullback as we wind down Q2 and move into Q3. Given this week’s price action, there’s a couple of interesting areas to watch for potential higher-low support. We have the psychological level of 95.00, and below that around 94.75-94.80 we have another potential area, and each of these can open the door for strategies with stops placed below this week’s reversal at that big zone of support that runs from 94.20-94.30.

US Dollar via ‘DXY’ Hourly Chart: Potential Pullback Levels for USD/DXY Retracement

US Dollar DXY USD Hourly Chart

Chart prepared by James Stanley

EUR/USD Tempts 11-Month Low, Bears Get Shy Ahead of 1.1500

In May, a threatening trend had developed in the EUR/USD as a potent cocktail of political risk helped to erase months’ worth of prior gains. This theme took a step back from the ledge as we traded into June, helped in-part by the prospect of higher rates in Europe after rumors began to float that the ECB would announce details for stimulus exit at this month’s rate decision. Well, the announcement of stimulus exit came, but the prospect of higher rates was pushed further out into the future as the ECB said that they anticipate keeping rates at current levels ‘at least through the summer of 2019.’

This produced another bearish response in the Euro, but similar to what was seen in late-May, prices caught support before testing the 1.1500 level, and then began to bounce. As we opened up this week, we looked at EUR/USD testing a key zone on the chart, and this is the same area that helped to catch support over multiple instances since August of last year, and this area runs from 1.1685-1.1736. Sellers pounced on the test of that resistance zone, and prices made another fast approach towards 1.1500.

But, just as we’ve seen twice already over the past month, sellers got shy as we approached the psychological level, and prices are now exhibiting a bit of higher-low support as we move towards the end of Q2.

EUR/USD Four-Hour Chart: Sellers Get Shy Ahead of 1.1500

eurusd eur/usd four-hour chart

Chart prepared by James Stanley

The big question in EUR/USD is how we take-out 1.1500. A down-side break of that level could expose a deeper area of support around the 1.1200 handle as we trade into Q3, but this will likely need a bit of assistance from either a) really bad European data b) another increase in European political risk or c) a concerted move of strength in the US Dollar.

EUR/USD Weekly Chart: Testing Trend-Line Support, Bearish Potential to 1.1200

eurusd eur/usd weekly chart

Chart prepared by James Stanley

GBP/USD Approaches Key Psychological Support at 1.3000

One currency that has not been shy about showing moves ahead of quarter-end has been GBP/USD. We looked at a short-side setup in the pair earlier in the week, and both targets have now been taken-out. Prices are making a fast approach towards the vaulted psychological level of 1.3000, and this could make the prospect of continued bearish positions a bit of a challenge. This could also present a backdrop that could be ripe for reversal as we open into Q3, especially as expectations for an August rate hike out of the BoE could help to bring back the bid.

This type of reversal should not be approached lightly: Selling pressure here has been quite visible and has shown no signs yet of abating. Traders would likely want to wait for a confirmation of support at or around 1.3000 before instituting reversal strategies.

GBP/USD Daily Chart: Fall Through Fibonacci Support on Approach Towards 1.3000

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Chart prepared by James Stanley

NZD/USD Breaks the Two-Year Range on Dovish RBNZ

Another pair that hasn’t been shy about making fresh lows ahead of quarter-end has been NZD/USD. We’ve followed this setup quite a bit over the past few months, largely on the basis of a range-pattern that’s held in the pair since June of 2016. This helped to position-in to the US Dollar rally as it was beginning to show, and even offered some counter-trend setups as we traded into mid-May and early-June.

But that range is now breaking as prices are trading at fresh two-year lows. The driver here was last night’s RBNZ rate decision, and this has helped prices in the pair break-down to test the .6750 psychological level.

NZD/USD Daily Chart: Fresh Two-Year Lows After Bearish Break of Range Following RBNZ

NZD/USD nzdusd daily chart

Chart prepared by James Stanley

This is the type of theme that can often get traders excited for the prospect of new trends, and that may be what we end up with here. But – caution is the name of the game at this point as this is a relatively new occurrence in something that had previously remained relevant for two full years. Traders looking to jump on the short NZD/USD theme may want to direct strategies to shorter-term variations in order to work with that bearish momentum and if it does shake or pull-back, losses could be mitigated.

NZD/USD Hourly Chart: Aggressive Bearish Momentum This Week Hastened by Dovish RBNZ

NZD/USD nzdusd hourly 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

Contact and follow James on Twitter: @JStanleyFX