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US Dollar Pulls Back Shy of Resistance: Next Week's FX Calendar is Loaded

US Dollar Pulls Back Shy of Resistance: Next Week's FX Calendar is Loaded

James Stanley, Senior Strategist

Talking Points:

- US 2Q GDP was released this morning to the strongest print since 2014 at 4.1%. But – this still failed to match the expectation of 4.2%, and the US Dollar is pulling back in response. It’s been an active week in the USD, as an earlier dip found trend-line support ahead of yesterday’s ECB rate decision, and this led to a strong day-and-a-half as DXY jumped towards the 95.00 level. Bulls pulled back just shy of resistance, and this morning’s GDP data is helping to deepen the dip as we move towards week-end.

- Next week’s economic calendar is absolutely loaded with risk events. We have rate decisions out of the Bank of Japan (Monday), the Federal Reserve (Wednesday) and the Bank of England (Thursday). We also have Euro-Zone inflation data on the docket for Tuesday, and after yesterday’s no-change ECB meeting, this will likely receive considerable focus. Next week closes with the release of US Non-Farm Payrolls for the month of July – so buckle up because next week can be big.

- 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 GDP

This morning brought the release of second quarter GDP out of the United States, and expectations were extremely high as we approached the release. The number was released at the strongest since 2014 at 4.1%, but still failed to match the expected 4.2%. This helped to pose a minor pullback in the US Dollar after the currency made a strong jump towards the 95.00 resistance area over the past day-and-a-half.

This leads into a loaded economic calendar for next week. The Bank of Japan hosts their July rate decision on Monday night/Tuesday morning, and this is followed by European inflation numbers for the month of July. Wednesday brings the Federal Reserve’s July rate decision, and this is followed by a ‘Super Thursday’ rate decision at the Bank of England. The week closes with Non-Farm Payrolls, and this may finally give FX markets the motivation they’ve been looking for to break out of the summer volatility slump.

DailyFX Economic Calendar: High-Impact Events for the Week of July 27, 2018

DailyFX Economic Calendar High Impact Events Week of July 27, 2018

Chart prepared by James Stanley

US Dollar Dips After Bullish Bounce From Trend-Line Support

As we came into yesterday’s session with the ECB as the highlight of the economic calendar, the US Dollar had found support on a trend-line that connects the June and July swing lows. As the Euro dropped following ECB, the Dollar jumped from that trend-line support to make a strong approach towards that 95.00 level that’s been helping to hold the highs in the Greenback over the past two months.

US Dollar Daily Price Chart: Jump From Trend-Line Support Falls Short of 95.00 Resistance

US Dollar Daily Price Chart

Chart prepared by James Stanley

After this morning’s GDP report, prices pulled back ahead of that 95.00 level, and we’ve seen a bit of short-term support develop around Tuesday’s swing-high. The big question is whether we get another test above 95.00 and, bigger-picture, whether bulls have the motivation to continue pushing through after another attempt.

US Dollar Two-Hour Price Chart: Pulls Back to Short-Term Support, Prior Resistance After GDP

us dollar two hour price chart

Chart prepared by James Stanley

EUR/USD Traverses Triangle Range – Resistance to Support

The digestion formation in EUR/USD continues to hold after the one-two punch of ECB followed by this morning’s GDP print. This sets the stage for next week’s release of Euro-Zone inflation numbers. The ECB didn’t say anything especially provocative or different from their June statement, and it appears as though the driving factor to near-term Euro price action will emanate from inflation data out of Europe. Last month saw inflation print at the ECB’s target of 2%, and this comes after the prior month’s number jumped up to 1.9% from a previous 1.2% print.

Euro-Zone Inflation

Euro-Zone inflation since June, 2017

Chart prepared by James Stanley

On the chart, EUR/USD remains in the symmetrical wedge/triangle that’s been building for the entirety of Q3. Next week’s inflation data combined with the FOMC on Wednesday may finally give markets the motivation they need to break out of this digestion pattern.

EUR/USD Daily Price Chart: Triangle Continues After This Week’s Grind at Resistance

EURUSD eur/usd daily price chart

Chart prepared by James Stanley

USD/JPY Attempts to Dig-Out Support From Prior Trend-Line Resistance

Before we get to that European inflation data on Tuesday morning, we have a Bank of Japan rate decision. As has become usual around the BoJ, there’s little expected by way of actual changes; but the matter of importance here appears to be in the details. The BoJ has been buying fewer long-dated bonds as part of their yield curve control QE program. This has led to the thought that the BoJ may be nearing their own stimulus-taper, similar to what’s been seen around the ECB. But – as of yet, we have no such recognition of this from the Bank of Japan, and Monday night presents an open opportunity for the BoJ to do so. On the other side of the argument, BoJ Governor Kuroda has shown little indication of moving away from the bank’s uber-dovish stance, and inflation remains extremely low in Japan, removing a bit of the motivation that was seen at the ECB for their announcement of stimulus taper last month.

Japanese Inflation at .7% for June Still Nowhere Near the BoJ’s 2% Target

Japan inflation since June, 2017

Chart prepared by James Stanley

On the USD/JPY chart, the big question is whether buyers will respond to the support area that’s been getting carved-out over the past week.

USD/JPY Daily Price Chart: Support Build Over Past Week After Bullish Breakout Pulls Back

usd/jpy usd/jpy daily price chart

Chart prepared by James Stanley

Looking at shorter-term price action, we can still see where buyer motivation is lacking after this week’s grind around support, as prices have pulled back short of each test of the prior high. This can highlight bullish potential in the pair should bulls finally be able to push-through the 111.55 area on the charts, much as we looked at earlier this week in our webinar, US Dollar Price Action Setups Ahead of ECB.

USD/JPY Hourly Price Chart: Bullish Motivation Lacking

usd/jpy usdjpy hourly price chart

Chart prepared by James Stanley

GBP/USD: Can Cut Both Ways Around BoE Super Thursday

Coming into Q3, we were looking at very legitimate odds of a rate hike at next week’s Bank of England ‘Super Thursday’ rate decision. As inflation remained well-above the BoE’s 2% target, and after the June rate decision saw three dissenting votes cast for an immediate rate hike, odds started to tilt towards a hawkish outlay at next Thursday’s meeting.

But last week brought us another disappointing GDP print out of the UK. And in just a couple of months, we’re looking at that showdown between the EU and UK for Brexit negotiations, and this is leading to the prospect of a passive BoE next week as the bank waits to further evaluate data before making an important decision ahead of a really large potential driver.

Last week’s disappointing inflation print led to a failed test of the 1.3000 level. Prices started to bounce as sellers dried up below the whole number, and the comments from President Trump last Thursday helped to bring on USD-weakness, which led to further strength in GBP/USD. We looked at a bullish GBP/USD setup earlier this week, targeting the 1.3200 level. That 1.3200 level came into play yesterday, and prices have been breaking lower ever since.

At this point, we’re catching resistance off of the Fibonacci level of 1.3117 while support is continuing to show around the same 1.3083 area that came into play earlier in the week.

GBP/USD Four-Hour Price Chart: Bullish Bounce to 1.3200; Return to Weekly Lows

gbpusd gbp/usd four hour price chart

Chart prepared by James Stanley

On the daily chart, we have a fairly messy scenario here in GBP/USD. Traders would likely want to wait for some element of resolution before looking to longer-term position stances, and this can certainly be driven by next week’s BoE rate decision, in one way or the other.

On the bullish side of the pair, traders would likely want to wait for a break of the descending trend-line that’s been in play since early-June; while sellers would likely want to look for breakouts at or below the 1.3000 level for bearish continuation or breakout strategies.

GBP/USD Daily Price Chart

gbpusd gbp/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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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