US Dollar Talking Points:
- The Greenback is trading higher on the day after what became a pronounced bullish response last week. Tuesday brought a support test below the key level of 95.00 on DXY, but this was met by an outsized bullish response that propelled prices up to a key resistance level on Friday morning. That resistance held into last week’s close, but buyers have come back shortly after this week’s open, setting the stage for a re-test in the US Dollar at the 96.04 level on DXY.
- The big item of concern for this week is equity strength. Two weeks ago produced a very noticeable pullback across global stocks, and last week was marked by a continued grind around support, with bulls not yet able to leave the lows in the rearview mirror. Will buyers be able to drive back towards prior highs? Or are we sitting at the cusp of a deeper sell-off in risk markets as a number of bearish themes remain in the headlines? This was looked at in this week’s Technical Forecast on Equities, where the US and Japan may be setting up for bullish themes while bearish potential remains around Europe and the UK.
- 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.
GBP/USD Dives Below 1.3000 as Messy Week Ahead for PM May
Brexit dynamics continues to push volatility in the British Pound, and as we open what appears to be a challenging weak for Prime Minister, Theresa May, GBP/USD is testing below the key psychological level of 1.3000. As was discussed by my colleague Nick Cawley a little earlier this morning, PM May could be headed towards a no-confidence vote, as her Chequers plan continues to divide parliament without providing much promise for a compromised solution.
This sets up British Pound price action to be in a fairly volatile position for this week, as this volatility can work in both directions and this isn’t the first time that markets have seen the threat of a no-confidence vote surround PM Theresa May. Something similar happened a month ago when Ms. May’s plan was initially rejected, creating a 375 pip sell-off in GBP/USD. Prices recovered in the aftermath, but now that fears around Hard Brexit or No-Deal Brexit are being coupled with the potential for volatility at the top ranks for the UK government, sellers have come back with force.
GBP/USD Four-Hour Price Chart: Bearish Test Below 1.3000 Support
Chart prepared by James Stanley
EUR/USD Testing 1.1500 as Big Support Zone Remains
This was a focus market in the Thursday webinar, as EUR/USD was setting up a potential bear trap. While the backdrop at the time appeared primed for bearish continuation, prices were finding a bit of support around a stubborn zone that had continued to elicit buyers into the market. And sure enough, after a false breakout around Friday’s European open, prices solidified and continued to push higher into last week’s close. But, as another fresh week has opened, bears have gotten back to work, and prices are now re-testing the 1.1500 level on the chart. The big question is whether sellers will find the ammunition to push the pair lower, and that will likely be determined by continued discussions between Brussels and Rome.
EUR/USD Four-Hour Price Chart
Chart prepared by James Stanley
ECB Highlights This Week’s Calendar
Also relevant to the Euro is the highlight of this week’s economic calendar, as the European Central Bank is set for a rate decision and accompanying press conference on Thursday. This will be the first such meeting after the bank began tapering bond purchases earlier in the month, and market participants will be looking for clues as to the ECB’s strategy for managing the various scenarios circling around Italy at the moment.
Another rate decision on the calendar for this week will likely bring more action out of the representative Central Bank, as the Bank of Canada is expected to hike rates by 25 basis points at their Wednesday meeting; and the week closes with US GDP for Q3, set to be released at 8:30 AM on Friday morning.
DailyFX Economic Calendar: ECB, BoC Rate Decisions Highlight This Week’s Macro Calendar
Chart prepared by James Stanley
US Dollar Bounces from 95.53
Last week saw a really strong US Dollar as risk themes took over in both the Euro and the British Pound. After testing below key support of 95.00 in the early portion of last week, bulls took over to push right back up to resistance at 96.04. The 96.04 level is the 50% marker of the 2017-2018 bearish trend in the Dollar, and this level gave two different iterations of resistance earlier in October when it helped to cap the Greenback’s advance.
This level helped to cap last week’s bullish run in the Greenback, and that softening from resistance continued into this week’s open, until DXY ran into support at the 95.53 level.
The big question around the Dollar for this week is whether bulls can finally push through Q4/October resistance at 96.04. Given the dynamics of recent, this theme appears to be coupled with continued difficulty in Europe and/or the UK. If markets do pose extension of risk themes around the scenario surrounding the ECB or PM Theresa May, fresh highs Q4 highs in the US Dollar become a more likely possibility.
US Dollar Four-Hour Price Chart: Fourth Time the Charm for USD at 96.04?
Chart prepared by James Stanley
US Equity Futures Holding Support Ahead of This Week’s Open
The bigger item across global markets so far in Q4 has been a return of weakness in stocks after what had become a very strong Q3. With equities having retraced rather aggressively in Q1, the second quarter saw a slow return of strength and that strength really ran loudly through Q3. In the first week of Q4, however, a different theme began to emerge and that hit fever pitch two weeks ago as US stocks gave back a large portion of those prior Q3 gains.
Last week was marked by equities attempting to regain footing, and this can be evidenced by the build of higher-low support in the Dow Jones as looked at below:
Dow Jones Daily Price Chart
Chart prepared by James Stanley
This was a central theme in this week’s Technical Forecast for global equities, looking for strength to return in the US and, perhaps even Japan as European stocks and, to a lesser degree, British Stocks held the potential for deeper sell-offs. So far for this week, strength in equities has remained through Asian and European opens, and the Nikkei setup below illustrates this well after last week’s support test at a key trend-line. This trend-line had helped to produce the ascending triangle that was investigated just ahead of the September breakout, and a hold of this higher-low support keeps the door open for bullish approaches.
Nikkei Weekly Price Chart: Holding Trend-Line Support After Breakout Retracement
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
