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US Dollar Price Outlook: EUR/USD, USD/CAD Set Up for USD-Weakness

US Dollar Price Outlook: EUR/USD, USD/CAD Set Up for USD-Weakness

James Stanley, Senior Strategist

US Dollar, EUR/USD, USD/CAD Price Outlook Talking Points:

  • This week’s macro-economic calendar is a bit quieter than last week. US earnings season gets started, and this will likely be the major focus for the week ahead.
  • Expectations are geared-up for a rate cut out of the Fed later this month, and last week’s Humphrey Hawkins testimony from Chair Powell pointed in this direction. Will the Fed deliver?
  • DailyFX Forecasts are published on a variety of markets such as Gold, the US Dollar or the Euro and 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.

US Dollar Drops On Powell Testimony

This week’s economic calendar slows down a bit from the Central Bank heavy outlay from last week. A series of Fed speakers spoke on the topic of US monetary policy, with the predominant focus being paid to Chair Powell’s Humphrey Hawkins testimony on Wednesday and Thursday. The Chair took a noticeably dovish tone in the prepared remarks and ensuing testimony, and this helped to drive US equities up to fresh all-time-highs as the S&P 500 jumped above the psychological 3k level.

S&P 500 Daily Price Chart

spx500 daily price chart

Chart prepared by James Stanley

This presents an interesting scenario for the Fed’s rate decision later this month. Last week also brought the release of inflation data out of the US, and core inflation remains above the Fed’s target of 2%. This follows jobs data from the week prior that also showed with strength, indicating that neither inflation nor employment are in dire spots at the moment. But – the Fed chair was still dovish last week, and that begs the question as to whether he/they see something that isn’t yet visible in the data and, further, how much softness might the Fed bring to monetary policy in the coming months.

Markets are very much geared up for a rate cut out of the Fed at the meeting that concludes on July 31. There’s a 27.6% chance of 50 basis points of cuts at that meeting, with the remaining 72.4% probability looking for 25 basis points. Suffice it to say, if the bank doesn’t cut rates at all, there will likely be massive disappointment that could bring those equity trends into question. Thickening the drama, markets are going to have to wait until September for updated forecasts out of the bank, as the Summary of Economic projections released in June indicated the expectation for only 25 basis points of softening in the second-half of this year.

FOMC Rate Expectations for July 31 Rate Decision

Please add a description for the image.

Chart prepared by James Stanley, data from CME Fedwatch

For its part, the US Dollar moved back into a bearish backdrop around last week’s Powell commentary. The month of June was a change-of-pace in the Greenback, as the strength from the prior nine months was flipped on its head. Prices in DXY broke below a rising wedge formation, which will often be approached with the aim of bearish reversals. That theme of USD-weakness hung around until the end of Q2, but as the door opened into July prices bounced, and prices rallied all the way into last week.

With sellers making a marked reappearance, can USD bears continue to push for the next couple of weeks as that rate decision nears? Underneath current price action are two nearby areas of support potential. At 96.47 is the 23.6% retracement of the 2011-2017 major move; and below that in the zone that runs from 95.86-96.03 is a confluent zone of Fibonacci levels that currently marks the three-month-lows in the currency after helping to arrest the June decline a few weeks ago.

US Dollar Daily Price Chart

us dollar daily price chart

Chart prepared by James Stanley

EURUSD Holds Higher-Low Support, Carries Short-Squeeze Potential

The month of June was likely at least a little surprising around the Euro. While the currency remains mired by a series of bearish factors, June brought strength, particularly in EUR/USD as another newer theme took-over. This allowed for EUR/USD to jump up to fresh three-month-highs as longer-term short positions were squeezed; and if the theme of USD-weakness can stick around, there may be scope for more. I had looked into EUR/USD on Friday of last week as the pair was testing another zone of support; and that scenario remains workable into this week as prices have thus far held that level.

EUR/USD Four-Hour Price Chart

eurusd eur/usd price chart

Chart prepared by James Stanley

USDCAD Closes in on 1.3000 Psychological Level

Perhaps a bit cleaner from a fundamental perspective, USD/CAD could present short-side interest. When the Fed started to take a dovish tilt in the month of June, the Canadian economy printed red-hot inflation numbers showing at 2.4%. So, as the US Dollar was dropping, the Canadian Dollar was surging on the back of this better-than-expected data; and that helped the pair to stick to an aggressive short-side run that broke-below a symmetrical wedge formation.

The pair is starting the week with an aggressive push down to the 1.3000 psychological level that hasn’t yet been traded at in the year of 2019. Below that, additional support potential exists around the 1.2928 area on the chart, and for traders that would like to wait for a pullback, resistance could be sought out around prior support of 1.3065.

USD/CAD Four-Hour Price Chart

usdcad 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 have a section for each major currency, and we also offer a plethora of resources on Gold or 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

https://www.dailyfx.com/authors/bio/James_Stanley

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

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