US Dollar Talking Points:
- The US Dollar is putting in a bullish breakout in the closing days of Q3 trade.
- Next quarter will see this theme remain center-stage as FOMC policy becomes a primary focal point for global markets. Will the Fed forecast a larger dovish flip before the end of 2019?
- 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 Breakout Ahead of Q3 Close
The US Dollar has put in a strong run of strength in the closing days of Q3, setting the stage for an interesting backdrop around the USD and the FOMC for Q4 of this year. Last year’s Q4 brought the painful push of equity weakness that continues to carry reverberations through Fed policy today, and next year’s Q4 brings the 2020 Presidential Election, which looks to be even more contentious than what happened in 2016.
Around the Fed, the big question for Q4 is whether the bank has more cuts in store. Last year’s Q4 saw a hawkish FOMC scare market participants by seeming out-of-touch, continuing to prod US rates higher while the rest of the world was moving-lower. The Fed still hiked in December of 2018, marking the ninth such move in the prior four years while also providing projections for another two hikes in 2019. That didn’t’ seem to set well as it only served to deepen the equity sell-off in Q4; but after that, a softer backdrop developed around the FOMC and that helped to re-lift equity prices through Q1 and Q2 of this year.
At this point, the Fed has cut rates twice. They’ve also been rather unclear about future plans, not committing to any additional cuts while framing the two recent moves as a ‘mid cycle adjustment.’ And as we trade into the Q3 close, US Dollar strength has been on full display as the currency has jumped towards the two-year-high that was set earlier this month.
US Dollar Four-Hour Price Chart
Chart prepared by James Stanley; US Dollar on Tradingview
EUR/USD Dips to Fresh Lows – Can Sellers Retain Control?
The ECB hasn’t been as shy about loosening policy, announcing yet another extension in the QE strategy in the month of September. This failed to provide a lasting bearish move to the Euro, however, and EUR/USD quickly bounced. But in the closing days of Q3 that bearish trend has finally shown up and EUR/USD has sunk down for a test of fresh two-year-lows. Can sellers continue to push through Q4? For those looking at short-side continuation strategies, there are a couple of areas of interest for lower-high resistance.
EUR/USD Four-Hour Price Chart
Chart prepared by James Stanley; EURUSD on Tradingview
GBP/USD Snaps Back 50% of September Rally
The month of September has brought a surprisingly strong British Pound to the table. The currency ran into a long-term trendline in early-August and after spending much of last month grinding around that area, buyers took control in early-September and pushed GBP/USD higher by more than 500 pips. This late-month jump in the US Dollar has just helped to erase 50% of that prior move with a bit of support showing in a key zone on the chart that was looked at in yesterday’s webinar.
If USD-weakness does come back as a theme in the opening days or weeks of Q4, this could be an interesting setup.
GBP/USD Four-Hour Price Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
USD/CAD Price Action Collects at Key Zone
Another pair that could remain of interest for short-side strategies in the US Dollar for Q4 is USD/CAD. The pair’s had a very dichotomous Q3, showing both stark bullish and bearish trends. More recently, that strong push of USD strength has been unnoticeable in USD/CAD. The pair has found resistance in a key zone on the chart, an area that had set support for a three-month-span earlier this year. A series of short-term lower-highs has developed this week, helping to produce a near-term descending triangle pattern.
USD/CAD Four-Hour Price Chart
Chart prepared by James Stanley; USDCAD on Tradingview
AUD/USD – Fresh Decade Lows on the Cards for Q4?
Back on the side of USD-strength, and AUD/USD can remain of interest. The Aussie has been in a stark bearish trend since January of 2018 and that extended through the first-half of Q3. But the pair finally found some respite around the .6700 handle, and after a few different failed tests to trade through that level in August a retracement developed in early-September. Prices quickly jumped up to a key resistance zone on the chart, finding sellers to hold the highs. The theme of weakness returned two weeks ago and since then AUD/USD has dropped down to another key support zone, testing the prior flash crash lows around the .6750 handle.
As looked at in yesterday’s webinar, this remains an attractive vehicle for strategies of USD-strength, looking for a re-test and eventual break through those lows at the .6700 handle.
AUD/USD Four-Hour Price Chart
Chart prepared by James Stanley; AUDUSD on Tradingview
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
