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U.S. Dollar Dilemma: Return of Bearish Trend or Strength into Year-End?

U.S. Dollar Dilemma: Return of Bearish Trend or Strength into Year-End?

As we move into this holiday-shortened week in the United States, the U.S. Dollar remains in a precarious position, with resistance showing around a key zone of prior support. There’s a case to be made on the bullish side and there’s a case to be made on the bearish side, but where can traders look to most strategically position around the U.S. Dollar?

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- The first market that we looked at was the U.S. Dollar through ‘DXY’. The longer-term story shows how the deep sell-off in the first nine months of the year was a correction to the bullish theme that began in 2014. But after hitting the 50% Fib retracement of that move in early-September, strength started to show and we set a fresh three month-high in latter-October. At that point, it appeared like USD may have continuation power as we moved towards year-end with the Federal Reserve set to raise rates in December. But over the past couple of weeks, that strength has begun to dissipate and now we have questions as to whether USD-strength may actually be able to hold. We looked at a short-term bearish setup earlier today, and in the webinar we looked at how bullish stances could be setup in DXY.

- We then moved over to EUR/USD. Last week, we looked at the setups on either side of the pair, with the short-side winning out, at least thus far. The shooting star on the under-side of the bullish trend-line held as resistance, but now we’re beginning to test within a key zone of longer-term support. This can be a challenging area for additional short positions, and there is a realistic prospect of bullish setups should higher-low support show above the prior batch of swing highs around 1.1670.

- We then moved over to GBP/USD, which appears to be clearing up a bit as that level at 1.3216 offered a quick bout of short-term support. The longer-term setup in Cable continues to hold the 2017 bullish channel, but the support side of that channel is continuing to face tests. The likely driver here, UK inflation or, more to the point, the Bank of England’s response to continued strength in inflation, will be the likely driver; but we have to ask ourselves how quickly this may come into play after the ‘dovish rate hike’ that we saw earlier in the month.

- USD/JPY is continuing to show short-term bearish tendencies, with prices now testing within the big zone of support that runs from 111.61-112.43. This is a key support zone that’s been active throughout a large chunk of the year, and this could be used to play a bullish reversal in USD/JPY if we do, in-fact, see some element of higher-low support. We discussed what could be looked for in observance of such a theme in today’s webinar.

- USD/CHF carries bearish potential. We looked at how a recent Fibonacci retracement has helped set recent swing-low support, and current prices appear to be trying to form some element of short-term resistance. This can keep the door open for short-side plays in the pair.

- AUD/USD is putting in a bullish day despite being mired in a fairly aggressive longer-term sell-off. This could allow for traders to let a deeper pullback show before short-side exposure becomes attractive. The two prior analyst picks remain active, with one target remaining on position one and two on position two, with both stops adjusted to break-even.

- NZD/USD broke the double-bottom, and there is an interesting level to follow for lower-high resistance around 68.70.

- Gold is starting to show bullish tendencies as the prospect of USD-weakness grows a bit more prominent. We looked at the confluent support structure sitting underneath current price action that can keep the door open to topside approaches.

- Oil ran into resistance at a big level, the 38.2% retracement of the 2014-2016 major move. This level offered a couple of weeks of resistance; but prices are already back and sellers, at least so far today, have offered off this level. We looked at how this resistance can be re-positioned as future support in a bullish continuation approach.

--- 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.