Talking Points:

- The US Dollar has fallen back down to weekly lows after another test of Fibonacci resistance. Yesterday, we looked at the US Dollar from a few different vantage points in our webinar, and bulls have continued to display a passive tonality as price has re-tested prior points of resistance. A downside break through 94.00 on DXY opens the door for a further drop in the Dollar.

- EUR/USD caught a bid on some ECB comments earlier this morning, and USD/CAD is re-testing a key zone of support after a Bank of Canada interest rate hike. This is the fourth hike out of the BoC since last June, and markets are looking for another 3-4 hikes out of the bank by the end of next year. The big question revolving around the Canadian economy, and this was spoken to this morning in the bank’s statement, is how much disruption might be expected on the basis of tariffs and trade wars. The BoC is now saying that the hit to trade is likely to be larger than initially forecast, and this could derail those rate hike plans that are currently revolving around the Bank of Canada.

- 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 Falls Back to Weekly Lows After a Second Failure at Fibonacci Resistance

The earlier-week rally in the US Dollar has come into further question after bulls were unable to sustain the move. Yesterday, we looked at how the first day-and-a-half of this week’s price action in the Greenback had helped to produce a 38.2% retracement of the Q3 sell-off. Yesterday’s US session was marked by a move back down towards 94.00, and after a bump in the Asian session, prices found resistance again at the 38.2% retracement to return right back-down to support.

US Dollar via ‘DXY’ Hourly Price Chart: Another Resistance Test at 38.2, Return to Support

us dollar usd hourly price chart

Chart prepared by James Stanley

At the very least, this highlights how the Q2 bullish trend that had become so built-in during last quarter is continuing to face further questions. That bullish scenario in the Dollar was very much driven by weakness in EUR/USD, and as that theme has calmed with EUR/USD testing through a key zone of resistance, Dollar bulls have been a bit less aggressive when testing prior swing highs.

A downside break through 94.00 opens the door for a re-test of last week’s low at 93.71; and if that can’t hold, then we may soon be looking at a revisit to the June swing lows that run in the range from 93.20-93.30.

US Dollar Four-Hour Price Chart

us dollar four hour price chart usd

Chart prepared by James Stanley

EUR/USD Gets a Bump on ECB Comments

The EUR/USD put in a strong start to Q3 after what had been a brutal Q2. Given the backdrop of the scenario, it appeared as though there was potential to the upside on the basis of the ECB’s very low expectations for rate hikes. When the bank finally announced their strategy for exiting stimulus in June, they also shared that they anticipated keeping rates at current levels ‘at least through the summer of 2019.’

Even during the press conference, this vague outlay of ‘at least through summer of 2019’ brought upon questions, as Mario Draghi was asked, point blank, if that meant September of next year. He deferred, and this only added more fuel to the Euro selling as rate hike bets got kicked even further out into the future. But just a couple of weeks later the Euro-Zone saw inflation come in at the ECB’s target for the first time in years. And this brings up the possibility of continued gains in inflation, even if led by gains in energy prices, and how the ECB may not get the flexibility that they want or need to sit on this low rate regime for the next fourteen months or more. So the ECB set the bar so super-low in June that even small beats in data could help to bring back the bid, and that’s what we’ve started to see happen so far in the fresh quarter.

Earlier this morning, the opaque nature of ‘at least through summer of 2019’ came to further light, as various sources in the ECB appear to disagree on the timing of that next hike, with some members pointing to July (of next year) while others are looking later. Keep in mind – this is all at least a year away, and quite a bit can happen in that time; but suffice it to say, the extreme-passive stance that was shared by the ECB in June has come into further question, and this could continue to help bring buyers back into the Euro.

We looked at bullish EUR/USD positions as one of our FX Setups for This Week. Prices in the pair have continued to hold above the key support zone that starts at 1.1685, and this helps to keep the door open for bullish continuation on an intermediate-term basis.

EUR/USD Four-Hour Price Chart: Holding Key Zone 1.1685-1.1736

eurusd eur/usd four hour price chart

Chart prepared by James Stanley

USD/CAD Bounces From Confluent Support After BoC Hikes Rates

This morning brought the Bank of Canada’s July rate decision, and markets have long expected a hike here. This was the fourth hike for the BoC since last June, and the big question was how cautious the bank might be around future rate hikes given the rising trade tensions between the US and Canada.

The BoC straddled the line this morning, with a hawkish claim that higher rates will continue to be warranted in order to keep inflation near target; while also saying that they expected the hit to trade to be larger than originally anticipated. So, they can’t really go wrong with this morning’s statement, whichever direction matters move in the near-future.

Nonetheless, the net of this morning’s rate decision was a bit more hawkish than anticipated, and markets are looking at another three or four more hikes going out to the end of next year. This helped to bring a bid to the Canadian Dollar, and USD/CAD is re-testing an area of support that we’d used to stage bullish strategies earlier this week as one of our FX setups of note.

The price of 1.3066 is the 38.2% retracement of the 2016-2017 major move in USD/CAD; and this is the same retracement with which the 50% marker produced a double-top along with a bearish reversal just a couple of weeks ago. This current level of support had generated resistance when prices were on the way up, and given the pair’s proximity to the psychological level of 1.3000, the door can remain open to bullish continuation in USD/CAD.

USD/CAD Four-Hour Price Chart: Bounce From Key Support After BoC Rate Hike

usd/cad usdcad four hour price 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