US Dollar Price Outlook Talking Points:
- The US Dollar has been in the midst of a hard reversal so far in Q4. The FOMC rate decision is on the economic calendar for next week. Can USD sellers continue to push?
- Positive items on Brexit have helped to lift both EUR/USD and GBP/USD to fresh highs.
- 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 Bearish Reversal Continues
The Q4 pullback in the US Dollar has continued into a third week and with next week’s FOMC rate decision looming large, we will likely see the USD remain on the move. The currency is now trading at fresh two-month-lows and the big question is whether the Fed cuts again for a third time this year, which could, in essence, re-frame the two cuts that we’ve already seen so far in 2019. As the bank was cutting in July and then in September, they pitched those moves as ‘mid cycle adjustments,’ or ‘insurance rate cuts.’ But a third would make that a more difficult stance to justify and focus would likely remain on the December rate decision for yet another 25 basis point move of softening.
For its part, the US Dollar hasn’t been able to catch much of a bid so far in Q4. The currency came into the quarter running strong, setting a fresh two-year-high on the first trading day of October. But a bad manufacturing ISM report triggered a wave of sell orders and the bearish drivers have continued to stack up ever since. I had looked at this scenario in the Q4 Technical Forecast for the US Dollar, looking for a reversal in a brewing rising wedge pattern. Price action has now encroached upon the support side of that formation, keeping the door open for a deeper bearish move as the FOMC remains firmly in the spotlight for the remainder of 2019 trade.
Download the Q4 Forecast for the US Dollar
US Dollar Daily Price Chart: Q4 Reversal Down to Fresh Two-Month-Lows
Chart prepared by James Stanley; US Dollar on Tradingview
EUR/USD Tip-Toes to Key Resistance
That USD weakness has been very visible against European currencies, helped along by some positive news on the Brexit front. It was just last week that EUR/USD was testing a ‘nexus’ of support, as taken from the other side of a bearish trendline projection along with the support side of a bullish channel that made up a bear flag. That support held and the pair has launched outside of that channel, making a fast approach at a really big area of resistance that runs from 1.1187-1.1212. This zone of prices has been in-play for almost a year now, coming into the equation last November when EUR/USD was in an aggressive bearish trend. Sellers seemed unwilling to encroach upon this zone, which was finally tested in March trade. After a bit of jostling, sellers eventually posed a push down to fresh lows in July, after which this zone became resistance.
With price action fast approaching this zone yet again, will it pose the same role that it did a couple of months ago? This would be a very interesting area of prices to investigate for reversal strategies should it come into play in the near-term.
EUR/USD Eight-Hour Price Chart
Chart prepared by James Stanley; EURUSD on Tradingview
GBP/USD: Cable Caught at 1.3000
Similarly to the Euro, the British Pound has been the recipient of some significant strength over the past week on the back of Brexit dealings. Different, however, is the backdrop, as the British Pound was engaged in an aggressive bearish trend coming into August trade. But, as noted in these articles around the time, a long-term trendline came into play, helping to cauterize the lows throughout August. September finally saw the tides beginning to turn as a 500+ pip retracement showed in the month, and this has lasted into October trade when buyers really started to make a mark.
GBP/USD Monthly Price Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
I had looked at bullish continuation setups last Tuesday and that filled-in fairly quickly. The pair is now testing the psychological 1.3000 level, and this could be a daunting area to establish topside exposure. Shorts are also of question, as there may be more attractive venues to look for USD-strength (discussed below). This may be a situation where the most operable way forward is one of patience, looking for a pullback to a support level before that door may re-open to bullish strategies.
GBP/USD Four-Hour Price Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
USD/CAD Runs into Confluence of Support
I had looked into this one yesterday afternoon, spotting a support zone that might finally stall the sell-off as Canadian election results were expected to come-in last night. While this pair has been one of my favored vehicles for USD-weakness, the number of support elements coming into view was difficult to ignore. There’s all of a trendline projection, a prior swing-low, a Fibonacci level and if all of those could get taken out, the 1.3000 psychological level.
That trendline came into play overnight and has since helped to hold support in USD/CAD. This may be a pause point in the sell-off that could allow for lower-high resistance to come into play. A prior support zone that runs from 1.3132-1.3150 remains of interest for such a thesis.
USD/CAD Four-Hour Price Chart
Chart prepared by James Stanley; USDCAD on Tradingview
AUD/USD Tests Resistance at September Swing-Highs
Earlier I mentioned that there may be more attractive venues to trade for USD-strength. This may be that arena. AUD/USD has been in the midst of an aggressive bearish trend for some time now, starting a sell-off in January of 2018 that the pair still hasn’t really recovered from. To be sure, a few retracements have shown along the way, particularly as fresh lows have come into play. This scenario has now been brewing for a couple of months after AUD/USD pushed down to fresh decade lows in the opening days of August.
That bearish push continued throughout August, but sellers weren’t able to break much fresh ground. This led to a retracement in September with price action finding resistance below the .6900 handle. Sellers took another swing with another visit down to .6700 in the opening days of October, right in-line with the USD’s test of fresh two-year-highs. But, as that USD-strength has unwound, so has the bearish trend in AUD/USD and prices are back to testing that same zone of resistance that came into play in September. This is around the 50% marker of the July-October bearish move; and for those looking at reversal or recovery plays in the US Dollar, this theme in AUD/USD remains of interest.
AUD/USD Daily 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.
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
