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Talking Points:

- As we near Day Two of Jerome Powell’s semi-annual Humphrey Hawkins testimony in front of Congress, the US Dollar is pulling back from fresh July highs after a rather pronounced bullish bounce showed from a key support area yesterday. This highlights the one-year highs in DXY at 95.53, as this level has previously twice turned-around bullish advances in USD.

- Helping with that Dollar-strength is another wave of weakness in the British Pound as GBP/USD has set a fresh 10-month low. The pair is fast approaching the key psychological level of 1.3000, and after this morning’s disappointing inflation data for the month of June, sellers remain in control. A rate hike in August out of the BoE doesn’t look as certain, and considering the risk-averse posture of the BoE combined with the very fluid nature of Brexit dynamics, we may have to wait until November for a rate rise out of the Bank of England, if we get one at all.

- 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 Jumps to Fresh July High, Pulls Back Ahead of Day Two of Powell Testimony

The bullish jump in the US Dollar that started to show yesterday ahead of Jerome Powell’s testimony has continued, and the currency is pulling back a bit after establishing a fresh July high. Just yesterday morning the Greenback was testing support at 94.30, but as Day One of Jerome Powell’s testimony neared, the Dollar began to firm and that theme continued into this morning’s trade.

At this point, we’re making a hard-charge towards the June resistance at 95.53, and this is the one-year high in DXY. It appears as though we’re setting up for a showdown here at some point later today, but the big question, of course, is whether buyers will be able to keep pushing or whether we’ll see a third reversal from around the 95.53 level.

US Dollar via ‘DXY’ Hourly Price Chart: Jump to Fresh July Highs From Fibonacci Support

US Dollar USD Hourly Price Chart

Chart prepared by James Stanley

Should prices pose a topside break of that June swing-high, potential resistance exists at 96.04 as the 50% marker of the 2017-2018 sell-off; followed by 96.47 (the 23.6% retracement of the 2011-2017 major move) and then a confluent area around 98.00. Each of these were targets presented in our Q3 Technical Forecast on the US Dollar, which is available directly from the following link: US Dollar Q3 Forecast, DailyFX Trading Guides.

US Dollar via ‘DXY’ Daily Price Chart

US Dollar USD Daily Price Chart

Chart prepared by James Stanley

GBP/USD Crushed To Fresh 10-Month Lows, 1.3000 in Sight

Contributing to this morning’s Dollar strength is another wave of weakness in GBP/USD, although this time the driver is coming from an economic theme rather than a political one. We had looked into this scenario in yesterday’s webinar, highlighting the fact that the Fibonacci level at 1.3117 was continuing to face support tests, and was unlikely to hold up for long should bears continue to persist.

This morning that bearish drive caught another driver with the release of June inflation figures out of the UK. Inflation came-in last month at the same 2.4% that we’d seen in April and May, and this was well-below the expectation of 2.6%. This also helps to dim the prospect of a rate hike out of the BoE at their August ‘Super Thursday’ rate decision. As we’ve been saying, November would appear to be more likely for a rate hike, if we get one at all, as negotiations between the EU and the UK would have already begun, and Mark Carney and the BoE would have a bit more clarity for how Brexit will actually be executed.

UK Inflation: Three Consecutive Months at 2.4% Makes Less Compelling Case for Rate Hikes

UK Inflation

Chart prepared by James Stanley

In GBP/USD, the big question is what happens at 1.3000. We’ve seen a bit of support show ahead of a test of this level, and we haven’t seen the pair trade here since last September. If we do see a hold of support should 1.3000 come into play, the door could soon open to bullish reversal possibilities.

GBP/USD Daily Price Chart: To Fresh 10-Month Lows, Fast Approaching 1.3000

GBP/USD gbpusd daily price chart

Chart prepared by James Stanley

EUR/USD Breaks Lower: Are We Headed for Another Showdown at 1.1509?

The down-trend in EUR/USD last quarter was one of the more workable themes available to FX traders, but the bulk of the move really showed from late-April into late May, at which point prices began to bounce ahead of the 1.1500 psychological level. In early-June, prices ramped higher in anticipation of the ECB announcing a stimulus exit; but when this actually happened, and with the bank said that they were anticipating rates staying at current levels ‘at least through the summer of 2019,’ strength evaporated and prices perched right back down towards that prior low at 1.1509.

But sellers were unable to make much ground thereafter, and prices yet again began to bounce-higher as we traded into a fresh quarter. The net of the past month-and-a-half of price action in EUR/USD was a symmetrical triangle after a pronounced bearish trend, making for a bear pennant formation. With prices now breaking below last week’s swing-low, the door is now opened for a re-test at 1.1509.

EUR/USD Daily Price Chart: Setting Up for Another Showdown at 1.1509

eurusd EUR/USD daily 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