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USD Price Action Setups Ahead of ECB (EUR/USD)

USD Price Action Setups Ahead of ECB (EUR/USD)

James Stanley, Senior Strategist

USD Price Action Setups Ahead of ECB (EUR/USD)

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- The first market that we looked at was the U.S. Dollar. The Greenback put in a steady stream of strength after last week’s CPI report, but has since seen sellers come-in ahead of a key zone of resistance that runs from 94.08-94.30. While this could be attractive for bearish continuation, the messy nature of near-term price action makes an immediate setup unclear. We looked at two different areas to watch in order to implement a directional approach on the U.S. Dollar.

- We then moved over to EUR/USD as one of the more attractive short-side USD plays. The pair put in a bounce off the top of a key zone of support, producing a higher-low from the swing set earlier in October. Given that we’re coming off of a recent higher-high, this opens the door for top-side continuation setups. A bullish breech of 1.1880 opens the door for a re-test of 1.2000 and then 1.2050. If new highs come-in potential resistance around 1.2134 can be utilized as an additional target.

- We then looked at the British Pound, which is rather messy at the moment. While there’s a heavy intrigue of political risk in the pair, there are also economic consequences to contend with. November 2nd brings a highly important BoE rate decision in which there is a realistic chance of a rate hike from the Bank of England; and Tuesday inflation of 2.9% made that rate hike look even more likely. But even with all of that bullish build, GBP/USD remains rather weak while dwindling around in a longer-term support zone. We looked at levels above and below current price action that can open the door to directional approaches but, until then, remain cautious.

- We then moved over to USD/CAD, which is beginning to look interesting on the short-side. We specifically focused-in on the recent bear flag formation and the fact that prices appear to be scaling-down that channel. Continued resistance around the 1.2500 handle opens the door for short-side setups, with eyes on stops above prior swing-highs.

- We then looked at USD/JPY, which is still working with the big zone of support that runs from 111.61-112.43. Given the fact that prices haven’t been able to show much to the effect of bullish continuation, a bit more information could make the topside theme considerably more attractive. Alternatively, a re-test of support around 111.61 could open the door to bullish plays, particularly if the previous structure of higher-lows around support remain respected.

- We then looked at Swissy, which just put in a double top formation when resistance showed around .9838. This opens the possibility of a double-top breakout should another test of that resistance come in. Alternatively, the short side can remain workable, but traders would likely want to let some additional weakness show before looking to trade the bigger picture bearish reversal.

- We then moved over to AUD/USD, which could be an attractive setup for bullish-USD continuation. The pair put in a recent break of support and this, combined with the near-term lower lows and lower-highs, can be a denotation that the short-side of the pair is continuing to build interest for a deeper run. We had discussed this setup in yesterday’s Market Talk article entitled, USD Stretches Towards Resistance: Yen, Aussie to Offer Opportunity.

- We then looked at NZD/USD, which appears to be incorporating some newfound political risk into price. A downside breech of prior support at .7054 opens the possibility of bearish continuation. Traders will likely want to avoid chasing, as the psychological level just below current prices could bring pause to that short-side run. We looked at using potential resistance of .7100, .7150 or .7200 for short-side approaches in NZD/USD.

- We then looked at EUR/JPY, which remains bullish. The fundamental backdrop here is bullish, as well, and prices remain supported at a key level around 131.70-132.05. So, what’s wrong with the setup? What’s wrong is that it’s been in this spot for almost a full month and buyers haven’t yet been able to break prices up to a fresh high. So, while this remains bullish, it hasn’t been bullish enough to yet justify trend-continuation strategies. Traders can, however, look to trade the near-term range, and this can be done with a prior trend-side bias in the effort of having ones cake and eating it too. This can be done by looking to buy range support, while scaling out of the position at resistance. But rather that completely closing and then reversing, traders would keep a remainder of the position on while at resistance in the hope of a continued breakout.

- We also looked at GBP/JPY, which isn’t yet in a workable spot for me. I showed a couple of different elements of what I’m looking for before I can look to assign a trend-bias into the pair’s near-term price action.

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

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