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US Dollar Price Action Setups: EUR/USD, GBP/USD, AUD/USD

US Dollar Price Action Setups: EUR/USD, GBP/USD, AUD/USD

James Stanley, Senior Strategist

US Dollar Talking Points:

  • The US Dollar started the week with another aggressive breakout to a fresh yearly high.
  • That USD strength is on full display in EUR/USD and GBP/USD; but it’s noticeably absent in AUD/USD as the Aussie has been even stronger than USD. This has led to profound moves in cross-pairs like EUR/AUD and GBP/AUD.
  • The big item on the calendar for this week is inflation data, set to be released on Thursday morning to an expected clip of 7.9%, 6.4% for core.
  • 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.

USD bulls have continued to press into another week as markets opened with a bang. The US Dollar ran up to yet another fresh yearly high as Gold and Oil both did the same. This highlights the extreme pressure that’s begun to show over the past week from Russian invasion of Ukraine, which has created a swell of risk aversion in a very unusual manner.

In the US, falling expectations for rate hikes have been offset by safe-haven flows, with a significant amount of flow coming out of Europe as witnessed by the cratering value of the Euro in EUR/USD and EUR/JPY.

The US Dollar hasn’t been strong everywhere, however, as AUD/USD has continued to gain, showing a clear illustration of an Aussie that’s stronger than the USD. I started looking at reversal scenarios in the pair in early-February after a reversal formation had built following a support hold at the .7000 psychological level.

US Dollar

The US Dollar remains in the midst of what’s been an explosive breakout. While the move started last year as driven by inflation and the prospect of higher rates, fear has entered the equation more recently. But, inflation hasn’t went away and this may actually become more problematic later in the year given the inclines seen in commodities like Nickel or Wheat – inputs that will invariably impact the direct costs of many products included in the CPI basket, not to mention the moves already showing in oil.

I had looked into the bullish technical backdrop around the US Dollar last Thursday, ahead of Non-farm Payrolls, as prices had built into yet another ascending triangle formation, which is often approached with the aim of bullish breakouts.

So this can be adding even more pressure to the USD as there’s multiple reasons for bulls to bid the currency – U.S. rate hikes and the prospect of more inflation as war drags on. The next major area of resistance on the USD chart is around the 100 psychological level on DXY. For support, last week’s resistance zone around 97.72-97.87 remains of interest, but prices could even call down to the 96.94 area while still retaining a longer-term bullish quality.

US Dollar Weekly Price Chart

US Dollar Weekly Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

EUR/USD Falling Knife

EUR/USD plummeted on the open this week to continue last week’s move. There’s been a bit of a bounce so far this morning after prices pushed down to another fresh yearly low to start to the week. But the damage last week was dramatic and this loads the deck for this week. The below monthly chart shows the significance of the area that was just traded through in EUR/USD, including a trendline that’s held the lows for the lifetime of the single currency, which was confluent with the 1.1000 level when it was breached last week.

EUR/USD Monthly Price Chart

EUR/USD Monthly Price Chart

Chart prepared by James Stanley; EURUSD on Tradingview

EUR/USD Shorter-Term

Shorter-term EUR/USD has found support off of the 78.6% Fibonacci retracement of the 2017-2018 major move and that’s led to a bounce back up to the 1.0900 handle.

Given how aggressively this one broke down – it may retrace all the way back to the 1.1000 handle while still retaining a bearish quality. The underside of that longer-term trend-line becomes a workable objective for this week.

EUR/USD Four-Hour Price Chart

EURUSD four hour price chart

Chart prepared by James Stanley; EURUSD on Tradingview

GBP/USD: Retreat to Support

I’ve been bearish GBP/USD and last week saw continued symptoms of breakdown in the pair. I had looked into the matter on Thursday, highlighting the potential return to a key support level at 1.3167. This is the 38.2% Fibonacci retracement of the 2020-2021 major move in the pair, and when it was last in-play in early-December, it helped to set the low in the pair before buyers staged a near 600-pip incline.

This morning saw that price traded through before buyers posed a mild bounce. This keeps the focus on the short side of the pair, looking for further lows. Short-term resistance potential exists at 1.3272 and 1.3354.

GBP/USD Daily Price Chart

GBPUSD Daily Price Chart

Chart prepared by James Stanley; GBPUSD on Tradingview

AUD-Strength

While the US Dollar has been really strong, so has the Australian Dollar. With the incline showing in commodities, commodity currencies such as the Aussie or the Kiwi have been shining.

I started lining up reversals on the pair in early-February for very different reasons, largely technical, after the pair held support at the .7000 psychological level, which then led to the build of a falling wedge formation. Falling wedges are often approached with the aim of bullish reversals, and that’s continued to play out .

This week saw a similar rush of strength after the open, much like the US Dollar, with buyers pulling back as the U.S. session opens. This morning’s high plots right around the 23.6% Fibonacci retracement of the 2020-2021 major move, and the fresh four-month-high keeps the door open for continuation scenarios. For those looking to avoid the US Dollar, this theme could also be sought out in EUR/AUD and GBP/AUD, where that surging Australian Dollar can be meshed up with weak currencies such as the Euro or British Pound.

AUD/USD Weekly Price Chart

AUDUSD Weekly Price Chart

Chart prepared by James Stanley; AUDUSD on Tradingview

--- 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.

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