US Dollar Price Action Setups: EUR/USD, AUD/USD, USD/CHF, USD/JPY
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US Dollar Talking Points:
- The US Dollar has pushed back for another resistance test at 109.14. This level helped to carve the highs in July and came back into the picture last Tuesday. It showed up again on Friday after Chair Powell’s speech and bulls have pushed right back for another test.
- Increasing frequency of resistance tests give the appearance that it may soon give way. There is some headline drive on the horizon, as well, with tomorrow’s economic calendar bringing ISM Manufacturing PMI and Friday’s release of Non-Farm Payrolls.
- 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.
The US Dollar is back up to price action resistance and vying for a breakout. Interestingly, EUR/USD is not one of the major push points at the moment as the pair is currently grinding higher-low support around the parity handle. So far this week, the big contributors to the USD run have been a deeper slide in GBP/USD to go along with breakout continuation in USD/JPY.
US Dollar Four-Hour Chart
Chart prepared by James Stanley; USD, DXY on Tradingview
In EUR/USD, there’s an interesting deduction showing at the moment. The past 24 hours has heard a chorus call of rumors and innuendo around the ECB that the bank may be looking at a 75 basis point hike at their September rate decision. This seems to be clearly-designed to stall the bleeding in the single currency which has been unable to hold its ground at the vaulted parity level.
Unfortunately those rumors seem to be doing little for EUR/USD price action, at least so far, as each bounce has been sold. This is likely emanating from a few different drives, key of which is extreme pessimism around the Euro-zone’s economic horizon. While the bank may be able to get a 75 bp hike in, what comes next? Are they going to be able to outpace the FOMC with future rate hike expectations? Because that seems incredibly unlikely given growth numbers and with where Euro-zone inflation is at, this spells for difficult road ahead.
Speaking of Euro-zone inflation, we got the latest installment on that data this morning and it was not pretty, with Euro-zone inflation at 9.1% and Italian inflation at 8.4%. The ECB has just started to lift rates as of last month and it hasn’t been able to stop the sell-off in the single currency. EUR/USD sat in a range for more than a week after that rate hike – with the one driver finally able to break the impasse coming from a US CPI print earlier in August.
That led to a flare in EUR/USD up to a spot of prior support, plotted around the 1.0350 level. Sellers responded aggressively, quickly pushing down for another test of the parity psychological level which continues to put up fight more than a week later.
EUR/USD Daily Chart
Chart prepared by James Stanley; EURUSD on Tradingview
Shorter-term EUR/USD price action illustrates just how whippy this market has been. In my opinion, a source of this stall in the sell-off is the psychological level of parity. As I’ve been highlighting, a major psychological level of that nature normally takes some time to give way.
When the EUR/USD bullish trend was surging-higher in 2002, the pair took six months to finally leave parity behind. Quite simply, the price of 1.0001 felt more than just two pips above .9999, and this can create friction as some investors may eschew the higher prices as they ‘feel’ too expensive.
This can work on the way down, as well, with EUR/USD ‘feeling’ much cheaper than just two pips below 1.0001 at a spot rate of .9999. If there wasn’t more stall in the sell-off, that’s where cause for concern should come in. I talked about this in the EUR/USD deep dive a couple of weeks ago and it remains an issue for today.
Now, with that being said, there hasn’t exactly been a burgeoning bullish theme around the Euro as each spike has been faded. This is likely sourcing from the fact that as soon as EUR/USD inclines, there’s an influx of sellers looking to hit the fresh highs along with some extreme skepticism of bullish potential in the single currency. And, looking at the fundamental situation, with the expectation for energy prices to skyrocket through the winner and with the ECB between a rock and a hard place – that’s understandable.
So, this seems to be one of those awkward situations where the fundamental backdrop is negative and bearish – yet the technical backdrop is showing a strong level of support that’s bent without a significant break. With enough persistence from sellers and enough motivation from the headlines, that level could still give way, as it did to bullish themes in December of 2002. At this point, it seems a question of how much pressure might mount before sellers can finally breakaway.
As of right now, I’m tracking supports at .9950 and .9900, with a breach-below the latter leading to fresh 19-year lows. On the resistance side, 1.0044 remains relevant, after which 1.0069 comes into the equation, and then we have prior range support from the rectangle formation running from around 1.0096 up to 1.0021.
EUR/USD Two-Hour Price Chart
Chart prepared by James Stanley; EURUSD on Tradingview
I did not list GBP/USD in the title of this article because frankly I’m not sure how to address it at the moment.
As I talked about in this week’s USD technical forecast, the pair had the look of breakdown continuation, which is precisely what’s happened. And it’s now trading at a fresh two-year-low, and RSI on all of the daily, weekly and monthly charts are in oversold territory.
Now, an important caveat is that RSI is a terrible timing indicator, at least in my opinion, and this doesn’t necessarily mean that the sell-off is over. But, it does highlight just how stretched this move has become on a variety of longer-term timeframes. Prior support around the 1.1750 psychological level can remain as near-term resistance potential.
GBP/USD Four-Hour Price Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
I wanted to look into AUD/USD as there’s some disparity from what I looked at above in GBP/USD. While Cable has been melting down, AUD/USD has been more tepid whilst at support, helping to build another falling wedge formation. This is often tracked with the aim of bullish reversals but given the general trend, I’d be cautious of looking for significant continuation. This could, however, be of interest for those not expecting the USD to breakout right now; instead looking for a pullback move that may then lead to a breakout.
For that vantage point, AUD/USD breaking out for a re-test of resistance at either .6943 or perhaps even the .7000 psychological level could be of interest.
AUD/USD Eight-Hour Price Chart
Chart prepared by James Stanley; AUDUSD on Tradingview
One major pair that has not had difficulty trending lately is USD/CHF. The pair spilled lower through July and into August, finally bottoming around the release of CPI data earlier this month.
But, as Fed speak has grown more-hawkish and the Fed more clear with their tightening attempts, the rally in USD/CHF has taken on a consistent bullish tone.
At this point price is sitting at a fresh high. But, higher-low support potential exists around Fibonacci retracements at .9763 and .9687.
USD/CHF Four-Hour Chart
Chart prepared by James Stanley; USDCHF on Tradingview
USD/JPY Stalls Before the High
USD/JPY has continued its bullish with a series of breakouts over the past week. The moves have seemed rather jagged to my eyes and the market is stretched. I had looked at a breakout setup two weeks ago and then again last week.
At this point, one major level sits overhead and that’s the current 24-year-high in the pair, plotted at 139.39. Beyond that is the 140.00 psychological level that hasn’t been in-play for USD/JPY since 1998.
USD/JPY Eight Hour Price Chart
Chart prepared by James Stanley; USDJPY on Tradingview
--- Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX Education
Contact and follow James on Twitter: @JStanleyFX
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