Talking Points:
- The US Dollar is attempting to dig-out from support after a five-day sell-off drove prices down to the 95.00 level yesterday. This sets USD up with a really interesting backdrop as we still have short-term bullish themes to work with as support remains; but on a longer-term basis there may be a brewing bearish reversal on the weekly chart that becomes attractive should this big support zone become violated. The Jackson Hole Economic Symposium begins tomorrow, so USD is not lacking near-term drivers to make a move, in one direction or the other.
- EUR/USD and GBP/USD are both working with near-term resistance to varying degrees, with the Euro retaining a bit of additional strength as GBP/USD builds within a symmetrical wedge formation.
- 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 Digs In to Support Ahead of Jackson Hole
The five-day decline in the US Dollar has finally started to slow as the bottom-side of a big support zone came into play yesterday. This support is playing out from the psychological level of 95.00, and this is the same point on the chart that helped to mark the swing-high in late-May as well as a batch of support earlier in August. After a few hours of tests at this level yesterday morning, and after a quick check of support around the release of FOMC minutes at 2PM ET, prices started to work higher within the zone. This sets the currency up for a fairly interesting backdrop as tomorrow marks the start of the Jackson Hole Economic Symposium. Also on the economic calendar and due to be released ahead of Jackson Hole we have July inflation numbers out of Japan.
US Dollar Four-Hour Price Chart: Support at 95.00
Chart prepared by James Stanley
The big question at this point is how the Greenback closes out the week. If we do see continued selling pressure, the door may soon be opening to bigger-picture bearish themes as we have a brewing evening star formation on the Weekly chart after prices intersected with a big level of resistance last week. This type of formation can often be used to trigger into bearish reversals, particularly after an extended top-side run that retraced within a prior trend.
That’s somewhat of what we have with the US Dollar. The Greenback found support at the 50% marker of the 2011-2017 major move in February of this year; and this brewing evening star formation is building off of the 23.6% retracement; pointing to a potential re-test of the 38.2% marker at 91.93 should this bearish formation finish the week in a completed manner.
US Dollar Weekly Price Chart
Chart prepared by James Stanley
At this stage, bigger-picture US Dollar price action remains bullish and until support is taken-out, that fact will remain. On a shorter-term basis, traders can follow this theme as we’ve seen the initial build of short-term higher-highs after the grind at support yesterday morning. Buyers holding support above yesterday’s lows leads to a higher-low, and that gives us a theme of short-term strength to work with in the direction of the longer-term trend. For those that would like to be a bit more conservative with following trend continuation, a break above the bearish trend-line that built-in last week could be of assistance, as this would also likely be coupled with a break-above the 95.53 level that marks the topside of that support zone.
US Dollar Hourly Price Chart: Initial Signs of Returning Strength on Short-Term Charts
Chart prepared by James Stanley
EUR/USD Resistance Holds in ‘R3’ Zone
Going along with that hold of support in USD we have a hold of resistance in EUR/USD. This took place at the same area of confluent resistance that had showed just ahead of the sell-off to fresh lows in the pair earlier in the month, although during that instance we also had the underside of a prior bullish trend-line to help with the pair topping-out. This is also the third level of resistance potential we were looking at in the pair for themes of bearish continuation this week. At this stage, focus is on the top-portion of this resistance and whether buyers can punch up to fresh highs.
Notable: The big driver of Euro weakness earlier in the month appeared to emanate from fears revolving around the developing situation in Turkey, specifically focusing in on European banks’ exposure and the prospect of contagion within European banking. Turkey has been on holiday this week, so that theme hasn’t been in the headlines nor has there been the same level of focus. So – we may not have seen the end of that theme as Turkish markets re-open next week.
EUR/USD Four-Hour Price Chart: Hold of ‘R3’ Resistance Zone
Chart prepared by James Stanley
Cable Holds Resistance at ‘R2’ as Wedge Continues to Build
Opening into last week the British Pound was still having difficulty finding a lifeline of support. We looked at short-side setups off of the 1.2817-1.2846 zone, and we soon saw prices perch down to a big Fibonacci level at 1.2671. This is the 23.6% retracement of the ‘Brexit move’ in the pair, and this is the same study that helped to mark the top in April of this year after resistance played off of the 78.6% retracement of this same move.
GBP/USD Weekly Price Chart: Brexit Move Still Helping to Define GBP/USD Price Action
Chart prepared by James Stanley
Coming into this week, we looked at the deep oversold condition in the pair combined with this long-term support, and we looked at counter-trend positions to work price action higher on the chart. The second zone of resistance soon came into play and since yesterday morning, that area has been helping to hold the highs with support coming in from the prior level of short-term resistance.
GBP/USD 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 Q3 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
