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Gold, EURUSD Test Resistance as USD Goes into FOMC on Back Foot

Gold, EURUSD Test Resistance as USD Goes into FOMC on Back Foot

2019-03-20 13:30:00
James Stanley, Currency Strategist
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Gold, EURUSD, US Dollar Talking Points:

- Today at 2PM ET brings the March FOMC rate decision. All eyes will be on the dot plot matrix as there are minimal expectations for any actual rate changes today. Also relevant will be the Fed’s take on the balance sheet and what the final composition of bonds held in the portfolio might look like. This could prod volatility in the risk trade, keeping both stocks and bonds on centerstage.

- The US Dollar has spent the past week-and-a-half giving back gains after failing to breakout at yearly highs. The topside ramp in USD showed-up after the ECB rate decision, and the reversal was punctuated by an NFP report with an abysmal headline number. USD-weakness has been very visible since then, and the big question is whether that continues or whether the bigger picture theme of strength re-takes control.

- DailyFX Forecasts are published 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.

FOMC Steps Up to the Plate

Today at 2PM ET brings the Federal Reserve’s March rate decision, and there is minimal expectation for any actual moves at this meeting as odds are currently over 98% for rates to stand pat. More pressing, however, will be the bank’s dot plot matrix and how that might signal the Fed’s tolerance for rate hikes later in the year.

At the last FOMC rate decision, Jerome Powell said that the bank would be patient as it evaluates cross-currents. And that wind appeared to be blowing from the risk aversion that showed up in Q4, just on the heels of Powell’s remarks about the bank being ‘a long way’ from the neutral rate. Since Powell’s promise of patience, economic data out of the US has been fairly mixed, highlighted by the NFP report from a week-and-a-half ago. The headline print was abysmal at +20k versus an expectation of +180k; but the report also included robust wage growth, which could be indicating a tighter labor market and a seeming lack of qualified candidates for available positions.

Since that NFP report, however, the tone in the US Dollar has been clear: A strong bullish trend turned into a strong short-term sell-off in fairly quick order. That US Dollar weakness lasted throughout last week and into this one, until yesterday finally saw some element of support build around the 96.30 level in DXY.

US Dollar Two-Hour Price Chart

us dollar usd two hour price chart

Chart prepared by James Stanley

The big question around today’s FOMC rate decision is whether the longer-term theme of strength might get another shot-in-the-arm. The US Dollar has been brewing an ascending triangle formation over the past few months with that resistance level from a couple of weeks ago helping to hold the highs. This is coupled with a bullish trend-line underneath price action that started in September, and this can keep the door open for longer-term strategies of strength in the US Dollar. But – for that to remain valid, buyers would need to return fairly soon to keep this formation in order.

US Dollar Daily Price Chart

US Dollar usd daily price chart

Chart prepared by James Stanley

EURUSD Tests Resistance at Prior Support

EURUSD has had a generally bullish outing since the ECB announced another fresh round of stimulus earlier this month. Sure, the aftermath of that meeting wasn’t pretty for Euro bulls, but support caught later that day and prices have been moving-higher ever since.

That bullish move has run into a bit of stall this week, finding resistance around an area of prior support. This begs the question as to whether or not bears are ready to make a return to the pair, and this is likely going to remain linked to the above theme: If we do see USD-bulls make a showing around or after today’s FOMC rate decision, EURUSD short-side strategies could soon become favored. If, however, buyers are unable to hold the lows and the US Dollar falls through March support, then EURUSD is likely looking higher with eyes on that prior range resistance that runs from 1.1448-1.1500.

EURUSD Eight-Hour Price Chart

eurusd eur/usd eight hour price chart

Chart prepared by James Stanley

USDJPY Remains Attractive for USD-Strength Strategies

The pair that I’ve been following for USD-strength strategies over the past month has been USDJPY. While USD-weakness made an appearance over the past week-and-a-half, USDJPY has maintained its topside trajectory while adhering to a bullish trend-line. That theme has held for a couple of months now following USDJPY’s wild open to 2019 trade. If today’s FOMC rate decision produces a net impact of USD-strength, USDJPY will likely remain as an attractive venue to work with that scenario.

USDJPY Eight-Hour Price Chart

usdjpy usd/jpy eight hour price chart

Chart prepared by James Stanley

Gold Price: Breakout Potential for USD-Weakness Strategies

On the other side of the US Dollar, Gold remains of interest. Gold prices have been on a streak of recovery since that NFP report earlier this month. Support built-in around the 1281 area, and prices soon made a return to resistance at prior support. The topside of that resistance zone has held the highs in Gold prices over the past week; and if USD-weakness emanates from today’s FOMC rate decision, the topside of Gold remains interesting. This keeps the door open for bullish breakout potential in Gold prices and just above current resistance is another area of interest that could function as topside targets.

Gold Price Four-Hour Price Chart

gold price 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 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 an abundance 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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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