USD Price Action Setups Ahead of Jackson Hole
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Talking Points:
- Today marked the start of the Jackson Hole Economic Symposium, and tomorrow brings what are expected to be widely-watched speeches from Fed Chair Janet Yellen and ECB President Mario Draghi. Markets have been rather quiet over the past few days, and this is likely due to the fact that the week is expected to close with some key macro drivers in-focus. In this webinar, we used price action to look at setups to work with various scenarios over the coming days.
- The first market we looked at was the U.S. Dollar, which is still showing some potential for a bottoming formation. After DXY set a fresh low on August 2nd, the Dollar has continued to see higher-lows show-up on the hourly chart. The fact that bears are losing momentum, and that bulls are getting a bit more aggressive could be highlighting that potential bottom. If we do break-lower, there is a subordinated support zone around the 2016 low of 91.92 that could be interesting, but if we break above the prior resistance around 94-94.30, the door is opened for bullish strategies in USD. Myself and John Kicklighter discussed the U.S. Dollar in the DailyFX Q3 Forecast for USD, and if you’d like to access that ‘bigger picture’ forecast, please click here.
- We then moved over to EUR/USD. This pair will likely see some swings tomorrow, as ECB President Mario Draghi is speaking at 3PM ET. This is well after the Euro close, and given that this is late on a Friday during a summer session, liquidity will likely be extremely low. This can lead to some sharp moves in the Euro, especially if Draghi gives us something to work with. Mario Draghi’s pattern of late has been to be dovish when asked about the ECB’s plans for exiting stimulus. This happened in April, June and again at the ECB’s rate decision in July. In each instance, the bearish response in the Euro to Draghi’s denials lost a bit of strength. In August, the Euro didn’t even pull back when Draghi said the ECB hadn’t discussed stimulus exit; so the big question is that if Mr. Draghi does go dovish, do we even see weakness in the Euro? If we do, we looked at two potential support areas for bullish continuation in EUR/USD.
- GBP/USD remains bearish. There’s a level at 1.2850 that could be interesting for short-side re-loads, and a bit above that, around 1.2920 is a secondary level of resistance that could also be utilized for such a purpose. As long as the pair remains subdued below 1.3000, this can be an attractive candidate for playing USD-strength.
- USD/CAD is still a fairly stretched move. The bearish run in the pair from May-August was profound. But the pullback in that move only gave a 23.6% retracement, at which point sellers took back-over. I’d like to see a deeper retracement before adding any short exposure here, and the long side of the pair isn’t all that attractive either given how strong the Canadian Dollar has been of recent.
- USD/JPY – remains at support of the four-month range. If we see this support hold, topside plays become attractive. If we don’t Yen-strength becomes an attractive theme, but will likely be a bit more attractive against a currency that isn’t USD, such as the British Pound.
- USD/CHF – the big level to watch here is .9770, and just a bit above that we have another swing around .9808. A top-side test of this zone can open the door to bullish exposure, as .9770 demarcates the neckline of an inverse head and shoulders pattern.
- AUD/USD – A potential reversal appears to be brewing here, particularly as prices remain subdued below the vaulted psychological value of .8000.
- NZD/USD – Testing the 50% retracement of the most recent bullish move, but there are few signs of bullish momentum. Support needs to avail itself first, at which point the long side of the move becomes attractive again.
- EUR/JPY – Prices are still hanging around that 128.52 level, which is the 38.2% retracement of the ‘Abenomics’ move in the pair.
- GBP/JPY remains attractive for risk aversion themes.
- Gold: Continued resistance below $1,300 opens the door for bearish reversal potential.
--- Written by James Stanley, Strategist for DailyFX.com
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