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US Dollar: GBP/USD Rallies, USD/CAD Sells-Off as AUD/USD Builds Base

US Dollar: GBP/USD Rallies, USD/CAD Sells-Off as AUD/USD Builds Base

2019-12-16 14:33:00
James Stanley, Currency Strategist
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US Dollar Talking Points:

US Dollar Down to Fresh Five-Month Lows

Last week was a big one for currency markets as a bevy of headline risk helped to bring the volatility. The US Dollar pushed down to a fresh five-month-low on the heels of the FOMC and ECB rate decisions, helped along by a strong breakout in the British Pound that was driven by election results in the UK. Heading into the final couple of weeks in the calendar year and the US Dollar has put in a notable bearish move, along the lines of what was looked at in the Q4 Technical Forecast just ahead of the start of the final quarter of 2019.

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US Dollar Daily Price Chart

us dollar daily price chart

Chart prepared by James Stanley; US Dollar on Tradingview

GBP/USD Break Out to Nineteen-Month-Highs

Probably the most notable move from last week took place in the British Pound as the currency surged on the back of election results in the UK; and this has been a busy year for volatility in the British currency. After a strong sell-off punctuated the backdrop on the back of Brexit pessimism from April into early-August, buyers showed up in September and the currency has continued to rally in the final four months of the year. This enthusiasm hit fever pitch last week as GBP/USD broke-out to and re-tested the 1.3500 psychological level, a price that hadn’t been traded at since May of 2018.

Buyers met their match, however, as resistance priced-in; an this doesn’t necessarily eliminate the bullish backdrop as much as it puts it on hold given that a new major level has come into play. This may be similar to what showed around the 1.3000 handle in October. At the time, the beleaguered currency had just begun to shift pace as an 800+ pip breakout showed in the first month of Q4. Price action ran all the way up to 1.3000 at which point buyers ran into a wall of selling pressure, and that resistance held for the next six weeks as a range built in short-term GBP/USD price action.

GBP/USD Four-Hour Price Chart

gbpusd price chart

Chart prepared by James Stanley; GBPUSD on Tradingview

USD/CAD Fall Continues as USD-Weakness Takes Over

In USD/CAD, the pair remains in a longer-term pattern of congestion as looked at on Friday. The bigger question here is when or if that pattern may soon break and, on a shorter-term basis, whether mean reversion strategies may remain in working order.

At this point, USD/CAD is trading at a fresh monthly low, coming very near the 1.3100 level on the chart. Just underneath price action is a pattern of higher-lows that have built above the 1.3000 big figure in the second-half of this year. This keeps focus on support potential, at least for now.

USD/CAD Eight-Hour Price Chart

usdcad eight hour price chart

Chart prepared by James Stanley; USDCAD on Tradingview

AUD/USD Attempts Build of Support Base From Bearish Trendline Projection

AUD/USD came into Q4 after a rough first three quarters of 2019. The pair remained in down-trend for much of the time, even after the ‘flash crash’ that had shown to start 2019 trade. A bearish trendline taken from swing highs in December of last year and April of this year helped to guide the short-side move, catching inflections in mid-July and again in early-November.

But with a very weak US Dollar showing up and a continued bout of support in AUD/USD around the .6700 handle, price action in the pair has pushed up to fresh four-month-highs, breaking that trendline along the way.

AUD/USD BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 5% -7% 2%
Weekly 8% -7% 4%
Current AUDUSD Retail Sentiment
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AUD/USD Daily Price Chart

audusd price chart

Chart prepared by James Stanley; AUDUSD on Tradingview

On a shorter-term basis, there’s even a case of support showing around prior resistance, raising the question as to whether AUD/USD bulls may be able to evoke a rally into the end of the year. To be sure, the .7000 big figure lurks just above and would likely be a hindrance to any themes of bullish continuation; but on a shorter-term basis, there’s now a couple of cases of support showing at prior resistance, keeping the door open to topside potential as the pair attempts to further recover 2019 losses.

AUD/USD Four-Hour Price Chart

audusd price chart

Chart prepared by James Stanley; AUDUSD on Tradingview

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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