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EUR/USD: Setups on Both Sides as USD Strength the Big Question

EUR/USD: Setups on Both Sides as USD Strength the Big Question

James Stanley, Senior Strategist

The U.S. Dollar found a bounce off of support yesterday, but bulls have yet to show a full-fledged return as sellers remain below prior support. This opens the door to setups on both sides of EUR/USD, and we look at a variety of ways to position around that.

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- We started off by looking at the U.S. Dollar, which has pulled back towards the subordinated support zone that we were looking at on Tuesday. The big question now is whether bulls will be able to continue the movement above that prior area of support around 94.08-94.30, as current resistance is showing around the flat level of 94.00.

- The big point of focus for today was EUR/USD, as there are currently setups on both sides of the pair after Tuesday’s rip-roaring rally. The shorter-term setup would be looking for continued top-side in EUR/USD, utilizing the assumption that today’s selling was a pullback in the near-term bullish move that started earlier in the week. This would be looking for targets towards the 1.2000 psychological level for another re-test. The longer-term picture, however, would be more bearish in nature; looking to work with a shooting star on yesterday’s Daily candle that produced a lower-high below the prior October batch of resistance. We discussed both setups in this morning’s Market Talk entitled, EUR/USD Churn Continues as Shooting Star Shows: A Bullish and a Bearish Case.

- We then briefly went over to EUR/JPY and then returned a bit later to look at setups on both sides of this pair, as well. The bullish case would be a bit more formulaic given recent price action, driven by the assumption that the two months of support around 131.40-132.05 will continue to hold as a re-test of 134.41 comes into play. But – as we saw on the four-hour chart later in the webinar, there’s a trend-line projection that’s showing resistance, and this could open the door to a further fall before that longer-term bullish theme might be ready for resumption. We discussed these yesterday in the article entitled, EUR/JPY Technical Analysis: Support Bent, but Not Broken.

- We then looked at USD/CHF, which is a bit cleaner than EUR/USD while looking at similar types of themes. A Fibonacci retracement drawn from the October 19th low up to the October 27th high offers a series of levels that have had some bearing in recent USD/CHF price action. Support came in yesterday off the 61.8% retracement of that move, and prices appear to be in the process of moving towards the prior swing high, around the 76.4% of that same move. If we do see resistance before the prior swing-high of .9986, the door is opened for short-side setups.

- GBP/USD appears to be cleaning up a bit. Near-term price action remains messy, but bullish signs have begun to show on lower-time frames. If we do see prices climb-above the 50% retracement of the August-September bullish move, a potential re-test of resistance at 1.3320 could open the door to short-term strategies. Outside of that, for longer-term approaches, a break of resistance from 1.3320-1.3350 or support at 1.2982-1.3026 can open the door to directional strategies.

- USD/CAD appears to be in the process of getting back to its bullish ways, continuing within the channel that’s populated since early-September. We’d previously looked at a key support level around 1.2672, and that price had helped to form a batch of support last week to produce a morning star setup on the daily chart. Since then, we’ve seen near-term price action climb to produce a series of higher-highs and lows, and current support is showing around a confluent area that runs from 1.2713-1.2723.

- USD/JPY is continuing to come-off of that building resistance around 114.03. Prices sunk towards a fresh monthly low early in yesterday’s session, and after bouncing back, sellers have come in around 113.33. The big area here is that confluent zone of support that’s been in play, in some degree or another, since February of this year. That zone runs from 111.61-112.43, and if we do begin to tip-toe back into that area of support, deeper falls may be on the radar as the months-long range will look set to continue.

- We closed with GBP/JPY in order to focus-in on a level of support. This level is at 148.29, and this area had helped to set resistance in December of last year, which held for most of 2017 before the bullish breakout across the GBP space in September. Shorter-term charts show a descending wedge-like formation, and if we do see a break back-above 150.00, the door is opened for bullish strategies.

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

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

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