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EUR/USD, US Dollar Talking Points:

- The US Dollar is working on fresh two-month lows after some comments this morning from FOMC Member, Rafael Bostic, and this opens a two-day period in which the focus will be on the Fed. A slew of Fed speakers are on the calendar for the next two days, highlighted by a speech at the Economic Club of Washington from FOMC Chair Jerome Powell at Noon ET Tomorrow. This could finally help the Dollar to set on a directional move should the Fed chair echo his Friday caution around future rate hikes.

- Recovery continues across risk markets such as the Yen and US equities, each of which saw risk-driven moves show up in December. In US equities, both the Dow and S&P 500 have crossed-above key levels on the chart denoting the potential for further recovery, while USD/JPY has continued to find support at prior resistance areas, indicating that a re-test of the zone around 110.00 may soon be in the cards.

- DailyFX Forecasts have been published for Q1, 2019 on a variety of currencies such as the US Dollar or the Euroand 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.

It’s been a relatively tame past 24 hours given the dynamics that were seen just a week ago and a slew of Fed-speakers over the next couple of days may be able to re-invigorate matters. The Japanese Yen continues to recover following last Wednesday’s ‘melt up’ that saw the currency pose significant gains during the low-liquidity handoff from the US session into Asia. After that quick swell of Yen-strength, prices have spent much of the past week exhibiting varying forms of recovery. As discussed in yesterday’s webinar, those areas of prior resistance potential have continued to hold as support as prices have crawled higher on the chart: In USD/JPY, this amounts to a potential re-test of the zone around the 110.00 level for that next area of resistance.

USD/JPY Hourly Price Chart

usdjpy usd/jpy hourly price chart

Chart prepared by James Stanley

Here Comes the Fed-Speak

Today brings a few items of note on the economic calendar, and tomorrow brings a speech from FOMC Chair, Jerome Powell. Markets will also hear from a series of Fed speakers over the next two days, kicked off by Rafael Bostic earlier this morning, and extending into Charles Evans today at 9AM, followed by Rosengren at 11:30 (all times in Eastern). Tomorrow will bring Tom Barkin at 8:30 followed by James Bullard at 12:30 and Jerome Powell at 12:45. Charles Evans will speak again at 1PM and FOMC Vice Chair, Richard Clarida will speak tomorrow at 7PM ET.

Chair Powell’s comments last Friday seemed to really invigorate the risk rally, helping with that recovery theme that’s been showing across US equities after a nasty reversal showed up around the Q4 open and lasted into the Christmas holiday. This week’s high-impact data concludes with the release of US CPI numbers for the month of December, set to be released on Friday morning at 8:30 AM ET. The expectation here is for headline CPI to moderate back-below the 2% threshold following last month’s print at 2.2%.

DailyFX Economic Calendar: High-Impact Items for the Remainder of This Week (Times in Eastern)

DailyFX Economic Calendar High-Impact Remianing for this Week

Chart prepared by James Stanley

US Dollar Drops to Two-Month Lows After Bostic Comments

The US Dollar came into the week with continuation from the Friday sell-off that began to show after Chair Powell’s comments. Prices soon ran down for a re-test of the two-month lows, initially established in early-November and then re-tested shortly after the open of the New Year. But – sellers haven’t yet let up, a quick support bounce that showed on Monday after that level came back into play was stopped short, and bears are now pushing deeper after comments from FOMC Member Rafael Bostic indicated that he would be open to rate cuts if downside risks come to bear.

As discussed, yesterday, that support zone loooked as though itmay not hold for much longer, Today’s release of FOMC minutes may be discounted to a degree given the focus on FOMC policy that’s shown since that rate decision, and this could put even more focus on Chair Powell’s speech tomorrow at the Economic Club of Washington, going along with the varying items of Fed-speak over the next couple of days. A continued dovish tone could allow for further downside in the US Dollar to go along with higher equity prices as that recovery takes another step away the December sell-off in risk assets.

US Dollar Eight-Hour Price Chart

us dollar eight hour price chart

Chart prepared by James Stanley

EUR/USD to Fresh Two-Month Highs

Also showing a potential break of the consolidation theme is EUR/USD, with the pair testing above the resistance zone that’s been present for the past couple of months that runs from 1.1448-1.1500. As looked at in this week’s FX Setups, a topside break above the 1.1500-handle could re-open the door for bullish strategies in the pair as prices craft fresh two-month highs.

I had looked into the pair in yesterday’s webinar and how that topside break above 1.1500 might be handled in the event that it takes place within the next couple of days.

EUR/USD Eight-Hour Price Chart

eurusd eur/usd eight hour price chart

Chart prepared by James Stanley

Dow Tests Resistance as Prices Scale-Above Key Level

On that tune of recoveries, focus continues around US equity markets after the Q4 reversal. While Q3 was very bullish with a great deal of consistency, matters turned-around quickly as the door opened into Q4, and the timing of that theme syncs well with some comments from FOMC Chair, Jerome Powell. Powell had remarked that the bank was ‘a long way’ from the neutral rate on October the 3rd, and matters weren’t really the same for the rest of the year. Stocks reversed with aggression, and that theme largely lasted into late-November when Chair Powell’s tone had changed on the matter. When discussing the negative rate at another speech, the Fed Chair said that he felt the bank was ‘just under’ this level, implying that the Fed was getting less-hawkish and looking at fewer rate hikes for next year.

This came crumbling down around the December FOMC rate decision in which the bank forecast two rate hikes in 2019; perhaps not going as dovish as what markets wanted. And at this point, markets are pricing in zero rate hikes for this year, highlighting a degree of divergence between what the Fed was/is planning and what markets would like to see.

Since that December FOMC rate decision, there’s been a further softening in Powell’s remarks, running into last Friday when the head of the US Central Bank denoted that future rate hikes will likely not come-in as quickly as the bank had previously anticipated. This speaks to the ‘Powell Put,’ similar to the ‘Yellen Put’ or the ‘Bernanke Put,’ in which the stance at the Fed is somewhat governed by the performance of risk assets.

This has helped to buoy US equity markets following that aggressive reversal in Q4, and since then buyers have been pushing prices in US indices to higher-highs to go along with higher-lows. I had looked at bullish setups in both the Dow Jones and S&P 500 coming into this week; and the Dow continues to trend-higher on the chart, setting up for a showdown at the psychological 24k level after making a topside push above the 50% marker of the December sell-off at 23,847.

Dow Jones Four-Hour Price Chart

djia dow jones 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 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

https://www.dailyfx.com/forex/video/live_events/2019/01/08/fx-price-action-chart-setups-eurusd-usdjpy-usdchf-outlook-forecast-srepstans.html