US Dollar Price Action Setups: EUR/USD, GBP/USD, USD/CAD, USD/JPY
US Dollar Talking Points:
- The US Dollar caught a shock earlier today on the heels of Chair Powell’s comments regarding inflation.
- Non-farm Payrolls is on Friday of this week but perhaps more importantly is the tone around the new Covid variant, Omicron, and how much economic disruption that may present.
- The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
This webinar was looking at setups around the US Dollar after a really busy morning. At the first day of Jerome Powell’s Humphrey Hawkins testimony in front of Congress, the head of the FOMC took a decisively hawkish tone, warning of inflation even in the face of the newly-identified Covid variant. This took many, including myself, by surprise as Powell has previously shown a tendency to be dovish. But these were the first public remarks since his re-nomination, so perhaps this was a part of his discussion with Joe Biden regarding a second term? Or, perhaps he just doesn’t have the fear of losing his post atop the Fed since he’s been nominated for another four years.
Whatever it was – it led to a quick move of USD strength while stocks were pushed onto their back foot. As I had shared, I remain bullish on the USD, particularly after this morning’s comments from Powell.
US Dollar Daily Price Chart
EUR/USD: Bounce from Big Support
EUR/USD has been on the pain train lower until a major spot of support came into play. I talked about this support zone during the webinar for some time but, the spot between 1.1187-1.1212 remains a key area on the chart.
This is the spot that caught the low last week, leading to a bounce this week. This morning’s European inflation came out hot, helping prices to push back up to the 1.1375 area, which holds as near-term resistance.
EUR/USD Daily Price Chart
GBP/USD Bounces from Base of Bull Flag
I had looked at breakdown scenarios in GBP/USD last week, basing around the 1.3354 area on the chart. That breakdown has hit in a big way, with support showing up at an interesting spot this morning.
GBP/USD Daily Price Chart
I started following reversal themes in USD/CAD back in October, right after a falling wedge had printed near the lows. And that reversal has continued to build, walking along a key Fibonacci retracement with a really strong month of November. At this point, both USD strength and lower oil prices are working in bulls’ favor. In the webinar, I showed three possible short-term levels for support in bullish continuation scenarios.
USD/CAD Four-Hour Price Chart
USD/JPY: The Test
I’ve talked about the carry trade in USD/JPY quite a bit over the past few months, similar to Q1 of this year. If US rates are moving higher, USD/JPY can be interesting on the long side, largely from the drive of the carry trade, or the interest rate differential between US and Japanese currencies. This was in full-force after the September rate decision, helping to drive USD/JPY to fresh four year highs.
But when news of the Covid variant began to make waves last week, USD/JPY spilled lower, and that continued into this morning until Powell’s comments regarding inflation.
If markets are legitimately pricing in higher rates, this should show in USD/JPY. On the other side, themes of risk aversion could bring a really strong Yen as those carry trades unwind. So this is an excellent market to monitor over the next few days for risk on/off hues.
USD/JPY Daily Price Chart
--- Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.