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Trade or Fade, USD Strength: Euro, GBP, JPY Price Action Setups

Trade or Fade, USD Strength: Euro, GBP, JPY Price Action Setups

2017-06-20 19:00:00
James Stanley, Currency Strategist
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Talking Points:

In this webinar, we used price action to analyze markets after last week’s collection of drivers. We had discussed the ‘big’ major pairings in this morning’s Market Talk, entitled, USD Strength, Trade or Fade: Setups in Euro, GBP and JPY.

- We first started off with DXY, which has continued the strength that started to show last week after the Federal Reserve’s rate hike. While this bullish move is encouraging, the longer-term setup is still bearish in nature, so rather than take on a one-sided allotment of long-USD setups, we looked for various pairs that could be accommodative for both directional bents in the Greenback.

- We looked at EUR/USD as a short-USD setup. While prices are tilting-lower on the hourly and shorter time frames, the longer-term chart is still very much bullish in nature as we remain within the 2017 upward-sloping channel. A support zone that runs from 1.1074-1.1107 could be particularly interesting for topside plays. Current IG Client Sentiment in EUR/USD is -1.95, as of this writing.

- We then moved over to GBP/USD, which is looking very bearish after this morning’s statement from BoE Governor, Mark Carney; in which he said that now is not the time to hike rates. This flies in the face of what was seen at last week’s BoE meeting in which three votes dissented from the bank’s decision to hold rates flat, instead voting for a rate hike. But as we discussed in last week’s forecast on the British Pound, this was likely a ‘transitory’ development at the BoE, and given that Brexit negotiations kicked-off this week, we’re likely in for a summer of bad headlines around Brexit discussions. Current IG Client Sentiment in GBP/USD is 1.76, as of this writing.

- We then moved over to USD/JPY, which is currently testing a huge zone of prior support/resistance. This zone runs from 111.61-112.40, and there are three key Fibonacci levels within this area. With price action resisting off of the under-side of this zone earlier in the morning, traders can look to buy a higher-low in the potential support zones of 110.95, 110.64 or 110.30.

- USD/JPY could be a bit challenging as it appears that we’re seeing two separate themes shift (USD strength and JPY weakness). Trades looking to isolate the theme of Yen weakness could look to EUR/JPY for what could be a more proactive setup.

- USD/CAD looks to have also underwent a recent theme shift. The Canadian Dollar has been exuberantly strong since last week saw the BoC’s Senior Deputy Governor, Carolyn Wilkins offer comments on strength within the Canadian economy, implying that stimulus may not be needed for too much longer. The recent bout of strength in USD obscures this pop in CAD, but for traders looking to isolate that theme of Canadian Dollar-strength, CAD/JPY could be interesting.

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

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