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US Dollar Price Action Setups Post-FOMC Dip and Rip: EUR/USD, GBP/USD

US Dollar Price Action Setups Post-FOMC Dip and Rip: EUR/USD, GBP/USD

2019-05-02 13:00:00
James Stanley, Currency Strategist
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EURUSD, GBPUSD, US Dollar Talking Points:

- Yesterday’s FOMC meeting brought little by way of new information but there was a very decent show of volatility. The US Dollar initially dropped on the statement release, but as the press conference began buyers quickly returned to the table to push prices back-up to prior resistance at 97.70. Price action remains near that zone the morning after.

- This brought along notable moves in both EUR/USD and GBP/USD; but as the US equity open nears, the bigger question is whether stocks might be at a turn. The S&P 500 is testing support in a rising wedge formation, which will often be approached with the aim of bearish reversals. The big question is whether that would be a more of a pullback, or whether bears might re-grab control, similar to what happened in Q4.

- 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.

US Dollar Dips, then Rips on FOMC

Yesterday’s FOMC meeting wasn’t expected to bring much by way of new information. As a matter of fact, many traders went into the announcement looking to merely gleam clues from Chair Powell’s press conference, and this is when matters started to get very interesting.

On the initial release of the FOMC statement, the US Dollar posed a quick test below support at last week’s lows. But, as Chair Powell got started on the press conference, USD bulls quickly came back and continued to push until prices had firmed right back to the 97.70 level, which was the prior yearly high ahead of last week’s breakout. The US Dollar remains around this area ahead of this morning’s US equity open, and with Non-Farm Payrolls on the docket for tomorrow, we likely haven’t seen the last of volatility in this theme.

US Dollar Eight-Hour Price Chart

spx s&p 500 eight hour price chart

Chart prepared by James Stanley

Shorter-term, the US Dollar has struck a tone of balance after the rate decision, with resistance holding around that 97.70 area and near-term support coming-in around the 97.50 spot on the chart. This can make directional prognostications difficult, as there isn’t really a tonality that’s carried over through the FOMC rate decision yesterday, price action has merely retraced a portion of the prior pullback. So drivers moving-forward will be key, the highlight of which is tomorrow’s Non-Farm Payrolls release that currently carries an expectation for +190k jobs to have been added to American payrolls in the month of April.

In the US Dollar – the big question is whether bulls can continue charging after yesterday’s support test – or whether prices will fold back deeper into the prior ascending triangle formation. Within that prior formation are a couple of additional areas of support potential: The price of 96.78 is the April swing-low, and a bit deeper is a key level around 96.47, which is nearing confluence with the bullish trend-line taken from the lows since last September.

US Dollar Daily Price Chart

s&p 500 spx500 daily price chart

Chart prepared by James Stanley

EUR/USD Pulls Back, Resists at Last Week’s Highs – Can Buyers Evoke a Turn?

Along with that volatile FOMC move around the US Dollar was a similar theme pricing-in to the EUR/USD. The pair saw a flicker of strength around the FOMC statement, at which point prices firmed-up to find resistance around last week’s highs; and as US Dollar bulls came rushing back into the equation, prices hurriedly dropped back down to a key zone of support.

That zone of support is the same that helped cauterize the lows for almost six months as the pair was ranging. Last week’s rush of USD-strength and Euro-weakness saw the first test below this zone of prices since June of 2017; but, since then, sellers were largely marginalized as prices continued to bounce.

The big question around the pair at this point is whether buyers return to hold support in that very key zone that’s been in-play for the past half-of-a-year. Yesterday’s resistance reaction was an encouraging sign to bears; but the fact that this response was thwarted at such a key area on the chart, exhibiting what may become a higher-low, and EUR/USD bears would at least want to entertain the possibility of a revisit of the 1.1250-1.1262 zone, and perhaps even a push-up to April highs around 1.1325.

EUR/USD Four-Hour Price Chart

eur/usd eurusd four hour price chart

Chart prepared by James Stanley

GBP/USD Rallies to Resistance, Holds on Hawkish BoE Shift

This morning brought a Super Thursday rate decision out of the BoE, and along with it came a very curious item. The bank cut inflation forecasts; but they also warned that additional hikes may be needed in the future. In response, it appears as though GBP-traders don’t yet know what to do, as the pair has merely exhibited a widened range without a specific directional push. This can make for a difficult backdrop if trying to pick a direction in the pair.

GBP/USD 30 Minute Price Chart

gbpusd gbp/usd 30 minute price chart

Chart prepared by James Stanley

Taking a step back on the GBP/USD chart, and a couple of different ideas can begin to populate. As can be seen on the current Daily chart, today’s non-completed candle is a Doji, representing indecision and given this morning’s BoE commentary – that makes sense. But – this Doji also shows at a key area of resistance, taken from the 1.3087-1.3117 area, thereby opening the door for short-side swing potential with stops above the highs.

On the other side of the matter – a previously strong zone of support was traded through during yesterday’s bullish run, and price action also pushed over the bearish trend-line that previously made up resistance in the descending triangle. If prices do push back to support at 1.2960-1.3000, similar to the way that EUR/USD has done so with the 1.1187-1.1212, the door can re-open to bullish strategies.

The reason this higher-low support would be more attractive than what was seen above is the possibility of more rate hikes and a more-hawkish BoE; while the ECB is expected to stay loose for the foreseeable future.

GBP/USD Eight-Hour Price Chart

gbp/usd gbpusd eight hour price chart

Chart prepared by James Stanley

Are Stocks Nearing a Turn?

A key question ahead of this morning’s US equity open: Are stocks nearing a turn?

The Fed has been key to US equity performance so far this year. Stocks tanked in Q4, right on the back of some comments from Chair Powell that alluded to a number of future rate hikes. But, as the pain increased throughout Q4, the Fed’s posture around rate hikes did as well, until eventually we saw a dovish turn at the bank that was confirmed at the March FOMC rate decision. This is when the Fed cut forecast for rate hikes in 2019, from the prior two down to zero, and this further helped stocks as risk appetite ruled the day.

S&P 500 Weekly Price Chart

spx500 s&p 500 weekly price chart

Chart prepared by James Stanley

In short order, equities were right back to that Q4 high, at which point buyers began to stumble.

Yesterday’s rate decision brought an initial support test of that prior yearly high of around 2940 in the S&P 500. But that support couldn’t hold and sellers have continued to push, and at this point, price action is testing trend-line support from a rising wedge formation, which will often be approached with the aim of bearish reversals.

A break-below this trend-line today opens the door for a deeper retracement with nearby target potential around 2895, 2875 and 2860. If that 2860 level is taken out in short-order, then the big batch of prior support-turned-resistance is exposed around the 2800 handle.

S&P 500 Four-Hour Price Chart

spx500 s&p 500 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 Q2 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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