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Trading the U.S. Dollar Pullback - Price Action Setups

Trading the U.S. Dollar Pullback - Price Action Setups

James Stanley, Senior Strategist

The U.S. Dollar fell back to a prior zone of resistance, and then just kept falling. Is the bullish theme that’s shown over the past couple of months already on the way out the door? Or will bulls come back for more?

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- The first market that we looked at was the U.S. Dollar as ‘DXY’. The Dollar is turning-over today, falling below a zone of prior resistance as the previous bullish move digests further. This raises questions around the potential for bullish continuation as we move towards the December FOMC rate decision, and in the effort of plotting that course, we drew a Fibonacci retracement around the recent bullish move in DXY that started in September. This exposes a zone from 93.08-93.57 to look for support in the aim of longer-term bullish continuation. This is the 50% and 38.2% retracements of the recent bullish move in DXY.

- We then moved over to EUR/USD, which is trading through zone of prior support that had recently become resistance. This exposes the group of swing-highs that showed ahead of the ECB’s October rate decision that run from 1.1837-1.1880, and if we do see resistance show ahead of this level, short-side continuation can remain as a workable theme. However, if this resistance is taken-out, the psychological level around 1.2000 becomes vulnerable to bullish continuation strategies.

- We then looked at GBP/USD, which is still messy, but appears to be clearing up a bit. Prices are remaining supported around the 2017 bullish trend-line, which can be found by connecting the March and August lows in GBP/USD. Nonetheless, there isn’t much in the realms of clear trends here, and a bottom-side break of support around 1.2982-1.3026 can open the door to short-side strategies.

- We then looked at USD/CAD, which is putting in bearish near-term price action while remaining supported in the bullish intermediate-term channel. Support around 1.2672 could be interesting for top-side approaches, as this is the 38.2% retracement of the 2012-2016 major move in USD/CAD, and was a previous area of resistance that had then shown-up as support.

- We then moved over to NZD/USD, which has a current double bottom formation. The 2017 low comes-in at the 23.6% retracement of the 2014-2016 major move at .6819. This low showed up twice, first in May and again in October, with a hastening of the bearish theme since early-August. This opens the door for breakout strategies on a break to fresh 2017 lows.

- We then looked at AUD/USD, which we remain short of. We added to the position last week, and even though we’ve seen considerable USD-weakness today, AUD/USD remains bearish as AUD has been even weaker than the U.S. Dollar.

- USD/JPY continues without significant near-term direction. We discussed resistance there last week, and little has changed as the multi-month symmetrical wedge remains in-force.

- EUR/JPY was previously looking as though it might turn lower, but like a phoenix rising from the ashes price action has jumped-up towards those prior highs. This obviates the potential for a bearish stance, and this opens the door for a re-test of resistance at 134.41. Higher low support could become attractive after fresh highs around prior resistance of 133.10.

- GBP/JPY appears to be clearing up a bit, but remains messy similar to GBP/USD. The big area of interest around GBP/JPY at the moment is 148.29, which is a key Fibonacci level that had previously helped hold the highs in GBP/JPY through much of 2017. More recently, this level has shown up as support, and this could be interesting for bullish plays.

--- Written by James Stanley, Strategist for

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.