US Dollar Talking Points:
- The bearish theme in the US Dollar caught another push this week around the FOMC rate decision on Wednesday.
- With the bank avoiding indication of any future rates or cuts, the focus now moves on to US data in the effort of forecasting that next move from the FOMC. Next week’s economic calendar brings two high-impact US prints to go along with rate decisions from Australia and the UK.
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It’s been a busy week on the charts as a number of big items on the economic calendar were in focus this week. As has been widely reported, the FOMC cut rates for the third time in as many meetings. But that was well-expected coming into this week and likely didn’t surprise many. More interesting, however, was the tone taken during the accompanying press conference by FOMC Chair Jerome Powell, in which he signaled that the bank will not be back to hiking rates unless there was a ‘really significant’ rise in inflation. This was taken to mean that the Fed is on pause for the foreseeable future as US data hasn’t been very strong of late.
That led into this morning’s release of Non-Farm Payrolls out of the US for the month of October, and the expectation here was very low as markets were looking for +88k jobs to have been added to US payrolls in the most recently completed month.
October NFP’s were released to a tune of +128k, handily beating the expectation while the prior month’s print was revised up to +180k. Inside of the report, Average Hourly Earnings came in a bit inside of the expectations, printing at .2% on the month versus the expectation of .3%; and the unemployment rate came out at 3.6%, right at the expectation.
All-in-all, this wasn’t a terrible jobs report and the headline number beat the diminished expectation. So far this has led to some short-cover in the USD-weakness theme that showed so prominently earlier this month, getting another shot-in-the-arm on Wednesday’s FOMC outlay.
US Dollar Two-Hour Price Chart
Chart prepared by James Stanley; US Dollar on Tradingview
US Dollar: The Focus is on the Data
With the FOMC implying a stable stance with no hikes nor cuts planned in the immediate future, market participants will likely cast their gaze towards US data in the effort of reading the tea leaves for that next move. Shortly after the Wednesday FOMC rate decision another risk factor showed when remarks from China indicated that they felt a long-term trade deal with President Trump would not be possible. This helped to turn around the FOMC advance in risk markets like the S&P 500 while providing a quick boost to Gold prices. But yesterday’s PCE release didn’t seem to help matters as the US Dollar simply pushed back-down to the prior October lows, where price action sat overnight ahead of this morning’s NFP release.
Also on the docket for this morning is the recent sore spot of ISM manufacturing numbers; and next week brings services ISM along with U of Mich Consumer Sentiment next Friday morning. Also on the docket and not to be taken lightly are rate decisions out of both Australia and the UK, the latter of which is a ‘Super Thursday’ even that will include updated forecasts and an accompanying press conference to go along with the rate decision.
In the US Dollar, the battle lines of price action are set: The resistance area that’s held the highs through three separate iterations lurks above around 97.86-97.94; and support for Q4 has so far held around 97.14. As looked at in yesterday’s webinar, the bias here appears to remain to the downside following October price action, in which sellers drove the US Dollar below the support side of a rising wedge formation. The big question now is whether sellers can continue to drive and whether US data will continue confirming that bear case in the USD.
US Dollar Daily Price Chart: Rising Wedge Break, Resistance Check at Prior Support
Chart prepared by James Stanley; US Dollar on Tradingview
EUR/USD Finds Support at Trendline Projection
When the US Dollar broke-down in the first-half of October, EUR/USD caught a strong bid up to fresh two-month-highs. Buyers pulled back on the throttle just five pips shy of a big zone of resistance, and since then lower-highs have been in the mix. This started a couple of weeks ago and helped to produce a bearish trendline that remains in-play today.
The FOMC-fueled sell-off in the US Dollar helped to push EUR/USD back above this trendline, and that was soon followed by a pullback with support showing off that prior resistance level. That support showed again this morning: As USD bounced on that NFP beat, EUR/USD pushed-lower until the trendline projection came into play, at which point buyers came back into the mix. This can keep focus on the long side of the pair until that ‘big picture’ zone comes back into play, running from 1.1187-1.1212.
EUR/USD Hourly Price Chart
Chart prepared by James Stanley; EURUSD on Tradingview
GBP/USD: Resistance at 1.3000 Looms Large but Buyers Still Backing the Bid
On the short-side of the US Dollar, GBP/USD remained of interest coming into Q4. While Brexit remained a hurdle, a long-term trendline coming into play helped to arrest the lows in early-August and September brought the initial semblance of a bounce into the mix. October saw that theme hit fever pitch as supported by some positive headlines around Brexit, and after testing below the 1.2000 handle in the month prior, price action quickly jumped up to the 1.3000-handle.
Since then, however, buyers have been thwarted. This produced a bull flag formation that was looked at last week, and buyers began to tip-toe out of that formation ahead of the FOMC this week. The stage appears set for another showdown at the 1.3000 level and the big question is whether buyers can break-through. As looked at in yesterday’s webinar, a relatively clean area of support potential remains just below current prices; and next week’s Super Thursday event at the Bank of England can change matters very quickly.
GBP/USD Two-Hour Price Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
USD/JPY Tanks
Previously attractive for topside plays, USD/JPY put in a vigorous reversal around FOMC and the China theme the morning after. While the S&P 500 is shooting back up to fresh all-time-highs, USD/JPY is holding support near three-month-lows. This may soon re-open the door to bearish strategies and the stage for such a scenario appears to already be set. The prior resistance-turned-support zone of 108.47-108.70 looms large above current price action, and a bounce into this area can quickly re-open the door for short-side swing strategies.
USD/JPY Four-Hour Price Chart
AUD/USD: Turn or Burn, RBA on the Docket
Next week’s RBA rate decision could serve to unsettle Aussie price action: AUD/USD has been in retracement mode as USD-weakness has become more prominent, allowing for a 200+ pip retracement in the longer-term bearish theme. Yesterday saw price action run into a bearish trendline that has so far helped to hold the highs in the pair and this keeps the door open for short-side swings. This could be one of the more attractive ways to play a deeper bounce in the US Dollar in the week ahead.
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
