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US DOLLAR Technical Analysis: USD Holds Above Key 55DMA With NFP Beat

US DOLLAR Technical Analysis: USD Holds Above Key 55DMA With NFP Beat

Tyler Yell, CMT, Currency Strategist

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Talking Points:

-US Dollar Technical Strategy: Awaiting To See If 55-MVA Support Holds

-Risk: Reward and Macro Environment Still Favor Longs ide

-US Dollar a Victim of Historic Volatility on December 3rd

What a week for the US Dollar. Before the fireworks on December 3rd, you had major institutions looking for a plunge in EUR/USD towards parity in the admittedly crowded Draghi Trade of short EUR/USD and long GER30. The day before the ECB meeting, Janet Yellen gave an outlook on the economy where she discussed the need not to wait too long on raising rates because that could lead to painfully sharp rises down the road, which caused the US Dollar to go bid toward new highs this year before falling short by 7 points. Then Thursday came, and all bets were off. The US Dollar saw its largest price range since the March 18th move when Janet Yellen said they would hold off for now on raising rates. Now, the US Dollar weakened because those on the short EUR/USD trade, long German Bunds & GER 30 had to get out and get out quick. This aggressive push to the exit door caused anything attached to the EUR to see high volatility readings on the year. Today, we had Non-Farm Payrolls that came in above estimates and last months monster number was revised even higher.

On the charts, it looks as though the US Dollar bleeding has stopped. The key level to watch now that we’ve broken a long-term polarity level of 12,104/27 is the zone between the 55-day moving average and March opening range low. The price zone is 12,073 (55-DMA), and the November OR low of 12,013. Between these two extremes are also the 100-DMA at 12,037. Additionally, you can see that a price channel (Blue Lines) drawn from closing extremes in September and October have us coming into channel support after running out of steam on the upside in early November at channel resistance. The channel support is worth watching because it aligns with support mentioned above as well as a common corrective price pattern known as a Bull Flag.

Given today’s employment report, some traders appear gun-shy to buy the US Dollar compared to the prior reaction to NFPs like today. However, the same fear of being exposed to another August 24th or December 4th move may take a backseat to fear of not being long US Dollar if Janet Yellen discusses more hikes down the road on December 16th. Right now, risk: reward and the longer term trend favors long positions (not a trade recommendation) or looking to a breakout above corrective resistance at 12,212 on a daily close basis. RSI(5) also supports that we’re likely coming into a trough that is due to bounce. The risk is that all the good news in the near future is baked into the current price for the US Dollar. Luckily, we can rely on Technical Analysis and the support zone of 12,013 to convert that fact into an objective price level. If you’re not familiar with trading based on risk: reward, it's worth reviewing these key principles in our "Traits of Successful Traders Guide."

Rising Price Support Meets Momentum Support

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