US Dollar Talking Points:
- The US Dollar has moved up to a fresh seven-week-high as selling in the Euro has remained prominent upon the open of a new week. EUR/USD is pulling back from a fresh seven-week-low as worries around Italy continue to permeate through global markets, and European stocks have taken a nasty turn over the past few weeks to reflect this enhanced risk. The DAX is nearing a big support zone, the same that helped to arrest the Q1 declines in March of this year. Can a re-test here elicit a similar response? Or will this area of prior support be a mere speed bump on the way to fresh 19-month lows?
- Q4 has not been light on volatility so far and a number of themes remain of interest. The scenario around Italy has stolen the headlines, and the attention of many market participants; but similar stretches earlier this year saw investors step back from the proverbial ledge of risk aversion. US stocks put in a fairly visible support bounce during yesterday’s US equity session, with both the S&P and Dow reacting near key zones of support that we looked at ahead of this week’s open; and if we do see continued respect of those prior lows, the door could soon re-open to bullish continuation strategies in US equities.
- 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 Fresh Seven-Week Highs as Q4 Bullish Theme Continues to Push
The US Dollar has continued to punch higher to extend the currency’s Q4 rally, and this is coming, at least in some-part, from continued selling in the Euro as risk aversion themes continue to show. The US Dollar softening a bit after pushing up to a fresh seven-week high; and despite the impulsive nature of the move, this bullish push has some respectable structure.
We previously looked at support at the 95.00 level, as this helped DXY to catch support in both late-September and again in early-October. After another push higher, DXY then found support at the level of 95.53 after the NFP pullback last week, which was the June swing high in the currency and helped to set both support and resistance at various points throughout the summer.
And then yesterday we looked at higher low support potential around the 95.75 level, and that area helped to form the next higher-low in the currency before bulls were able to push up to fresh highs.
US Dollar Two-Hour Price Chart: Higher-Highs, Higher-Lows, Can the Pattern Continue?
At this stage, we can deduce that much of this topside move in USD is coming from risk aversion, similar to what was seen in April-May and then again in early-August. As selling in the Euro continues to show, the potential for bullish continuation remains in the US Dollar. The primary complication at this point is one of chart position, as we’re fairly far away from the prior swing-low, and managing risk for continuation approaches could be a challenge considering how extended this move has become.
We are currently testing around a big level at 96.04, as this is the 50% marker of the 2017-2018 down-trend. We traded above this level earlier in the month, but bulls were unable to hold the advance and a pullback came-in shortly thereafter. But, after support set at the 95.53 level, bulls have been back on the charge.
Traders can look for higher-low support above yesterday’s swing-low of 95.68 to keep the door open for bullish continuation strategies in the currency.
US Dollar Hourly Price Chart
Euro Weakness Continues as EUR/USD Tests a Big Level
Coming into this week, we looked at the bear flag that had started to build in EUR/USD. It was fairly soon after the open of this week’s trade that the risk aversion-fueled sell-offs continues, and EUR/USD is now working on a fresh seven-week low to go along with those fresh seven-week highs in the US Dollar. This bearish move has pushed below the 50% marker of the 2017-2018 down-trend.
At this stage, the fear would be chasing an oversold move as price action is still a bit stretched. Traders looking to onboard short-side exposure in EUR/USD can look for resistance at an area of prior support. This zone runs from the same 1.1483 level we looked at coming into this week, up to the psychological level at 1.1500. A hold of resistance here keeps the door open for bearish continuation strategies in the pair.
EUR/USD Two-Hour Price Chart: Lower-High Resistance Potential
EUR/JPY Sellers Grasp Control
Also on the side of risk aversion, we looked at EUR/JPY coming into this week as we had formations on either side of the market.
Longer-term, there was a bull flag formation when putting the bearish two-week channel in context with the prior bullish move. But – on a shorter-term basis, a descending triangle formation had started to form within the channel, and this opened the door for a deeper downside move.
That deeper downside move has already shown up. Prices have continued to slide, but the support portion of that channel is still intact, as sellers have slowed down the pressure as the descending trend-line has come into play.
EUR/JPY Four-Hour Price Chart: Descending Triangle Fills In, Bearish Channel Still Holds the Lows
DAX Approaches Key Support as European Stocks Get Hit
We looked at bearish setups in the DAX coming into this week, and that theme has remained prominent so far as sellers have driven prices to fresh six-month lows.
We had previously looked at bearish setups in the index coming into September, and that theme ran well for the first portion of the month. But after support set and prices bounced-back, that same area of resistance came into play as we opened the door into Q4; and as those worries around the Euro have grown this month, so has the selling in the DAX.
That prior resistance in the DAX comes at a key confluent area, as we had two different trend-lines crossing in the same area as the 23.6% retracement of the 2016-2018 major move. The 38.2% Fibonacci retracement of this same study is what helped prices to cauterize support in March after a rather pensive test as we wound down Q1.
DAX Weekly Price Chart: ‘X’ Marks the Spot
US Stocks Bounce But Bears Have Yet to Relent
US equities put in an interesting day of price action yesterday. Bond markets were closed in observance of Columbus day, and this may have contributed to some of the dynamics. After jumping lower to start the week, a bit of support formed in the early-portion of the session. In the S&P, this support showed ahead of the 2860 level we looked at coming into this week; and in the Dow, that support showed in the first of the three deeper support areas we looked at in this week’s Weekly Technical forecast.
The big question around the S&P now is whether this support can hold the lows or whether we get another wave of risk aversion that brings into play deeper support around 2825.
S&P 500 Eight-Hour Price Chart: Support Holds Above 2860, Deeper Potential Around 2825
Dow Futures Attempt to Set Higher-Low Support Ahead of US Equity Open
In the Dow, we’re looking at almost a full week of pressure after the index set fresh all-time-highs just a few days into the fresh quarter. That pullback has retained fairly clear bearish structure, with lower-lows and lower-highs guiding through the various areas of support turned resistance.
To open this week, prices bounced down to the zone that we’ve been following from 26217-26260. This area helped to elicit a bounce in the middle of yesterday’s US session, and prices pushed up to a fresh short-term high. But in the early-portion of the Asian session, and throughout the Euro open, pressure continued to show as prices pulled back off of those short-term highs, and now we can see buyers attempting to cauterize support at a higher-low.
If we do take-out yesterday’s low, look out below. But – if we see buyers continue to respect this structure, helping to produce a higher-low after yesterday’s spill to open the week, and the door for bullish strategies could soon re-open.
Dow Jones Hourly Price Chart: Bulls Attempt to Dig-Out the Low at Key Support Zone
Chart prepared by James Stanley
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q4 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