US Dollar Tests Trend-Line Support Ahead of FOMC Minutes
US Dollar Talking Points:
- The US Dollar’s bullish trend has finally found some resistance off of the 97.50 level, and this was helped in-part by a speech from FOMC Chair, Jerome Powell yesterday. In that speech, Mr. Powell shared a differing view on the Fed’s proximity to the neutral rate than what was heard in early-October. On October 3rd, right as US equities topped, Mr. Powell said that the neutral rate was ‘a long way’ off. But yesterday – he said that the Fed was ‘just under’ this rate, implying a less-hawkish view towards future rate policy. This helped to push the US Dollar back-down while stocks caught a bid that held into yesterday’s close.
- FOMC drivers are not yet done for the week, as today’s economic calendar brings FOMC meeting minutes from the November 8th rate decision to markets. This was another pressure point for the risk trade, as that meeting earlier this month helped to stop the US equity recovery dead in its tracks, and stocks sold off for much of the next two weeks and change. But as we opened this week, a bit of support started to show and bulls were able to push higher yesterday around the Powell speech. The big question at this point is whether that optimism can continue, and in the Dow Jones, the level around 25,500 seems to be key for acknowledgement of such a theme.
- 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 Drops to Trend-Line Support
Yesterday saw a notable move across global markets on the heels of a speech from FOMC Chair, Jerome Powell. While the changes in his speech were subtle, the moves across markets were far more noticeable as a building pressure point found a bit of relief. In early-October, Jerome Powell said that the bank was ‘a long way’ from the neutral rate; which is the interest rate that is neither stimulus nor restrictive. This alluded to the potential for as many as three rate hikes in 2019; and in short order US stocks had taken a turn for the worse and continued to sell-off for the bulk of October. While themes of Brexit, the Italian budget and trade wars were largely shrugged off throughout this summer, it was this speech from Jerome Powell and the prospect of a very hawkish Fed into 2019 that seemed to really strike fear in market participants.
But in yesterday’s speech, Jerome Powell said that the Fed was ‘just under’ the neutral rate, implying a softened stance from the speech that we heard just seven weeks ago. This provided a bit of relief to the risk-aversion that had started to show over the past few weeks, and in short order the US Dollar had dropped, stocks had ripped-higher and even the Japanese Yen got in on the action, weakening against the Euro, Aussie and New Zealand Dollars.
In the US Dollar, prices posed a quick fall down to a key area of support. This is derived from the trend-line that’s been in-play since the Fed’s September rate hike, and last produced a support bounce a week ago. That trend-line helped prices bounce back-up to the 97.00 level, at which point some sellers came back in.
US Dollar Four-Hour Price Chart: Support Via Trend-Line, Resistance at 97.00
Chart prepared by James Stanley
EUR/USD Setting Up for Another Test of Key Resistance Zone
Going along with that bearish move in the US Dollar yesterday was a bullish push in EUR/USD, and the pair has held on to some of that strength as we trade into a fresh morning. The big question here is whether the pair poses another test of the 1.1448-1.1500 zone that’s been at work for the past couple of months.
The November high was at the top of the zone at 1.1500; and at 1.1470 we have the lower-high that was set at 1.1470. If sellers come in to post another iteration of lower-high resistance, the door can remain open for short-side continuation strategies. But if we take out this resistance, a deeper bullish move may follow and there may simply be more attractive areas to look for USD-strength at the moment, such as USD/CAD.
EUR/USD Four-Hour Price Chart
Chart prepared by James Stanley
GBP/USD Heads Back Down to Trend-Line Support
In an ironic twist yesterday, the Bank of England sounded the alarms around No-Deal Brexit just ahead of Jerome Powell’s speech. Sterling initially sold off as the BoE warned that unemployment could rise to as high as 7.5% while home prices could shed as much as 30%; but this only pushed prices down to a support trend-line which held until Mr. Powell began to speak. And as Mr. Powell spoke, US Dollar weakness took over, creating a rally in GBP/USD.
But that rally is getting faded-out already and prices are making another approach at that trend-line, which can be found by connecting the October, 2016 ‘flash crash’ low to the March, 2017 swing low in the pair; the projection of which has helped to define higher-low support on three separate occasions over the past month.
In yesterday’s technical article on the pair, I warned against chasing the fresh move, instead looking to a resistance zone test at 1.2896-1.2928 before entertaining topside possibilities.
GBP/USD Daily Price Chart: Prices Move Back Towards Trend-Line Support
Chart prepared by James Stanley
NZD/USD: Kiwi Finds Fibonacci Resistance After Wedge Breakout
On the short-side of the US Dollar, NZD/USD has remained an attractive venue. While the USD was breaking-higher throughout October, NZD/USD did a respectable job of holding support and showing its own bullish price action; and once we turned the page into November, that turned into a sharp bullish move that soon drove the pair to fresh five-month-highs. A bit of resistance showed in the middle of the month around a confluent area of Fibonacci resistance, and that helped to hold the highs as a retracement showed in the form of a falling wedge pattern. Such formations will often be approached in a bullish manner, and as discussed in Tuesday’s webinar, this also had features of a bull flag formation.
Prices have since broken out from that formation to return to Fibonacci resistance, and buyers appear to be spinning their wheels at this high watermark. This can open the door to pullback potential with eyes on a level like .6820 for higher-low support.
NZD/USD Four-Hour Price Chart
Chart prepared by James Stanley
USD/CAD Holds Fibonacci Resistance, Finds Support Ahead of Bullish Trend-Line
On the long side of the US Dollar, USD/CAD has been of interest recently as the pair has put in a two month bullish trend of respectable note. This trend really got started around that October speech from Jerome Powell, and since, there have been multiple support inflections on a bullish trend-line that can be found by connecting the October lows to the November 7th swing low.
This is the level that helped to build-in bullish plays earlier this month when confluence showed around 1.3132, and this trend-line even came into play earlier this week, just ahead of another wave of strength in the pair.
As warned yesterday, prices were nearing a big zone of resistance as taken from the 23.6% Fibonacci retracement of the 2008-2016 major move. This is the same level that helped to hold the highs in the pair this June through two separate tests until, eventually, sellers could take over to push back-down towards 1.2800.
But since that early-October low, bulls have been large and in-charge, and prices have stuck to this bullish trend-line with a great deal of consistency over the past couple months.
USD/CAD Eight-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 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
