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U.S. Dollar Price Action Setups Ahead of CPI, Retail Sales

U.S. Dollar Price Action Setups Ahead of CPI, Retail Sales

James Stanley, Senior Strategist

The U.S. Dollar has sold-off right back down to 2018 support around 91.80 in DXY. With Advance Retail Sales and CPI data released tomorrow, the Dollar remains in the spotlight as markets wade deeper into the New Year.

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- The first setup that we looked at was the U.S. Dollar, which has been in quite the interesting run of price action of recent. The Greenback set a lower-high before selling off yesterday on reports that China may be slowing or halting purchases of U.S. Treasuries. But when that report was later refuted, the Dollar came back to life and moved back towards resistance. But before that resistance at 92.60 could come into play, sellers were back, and this pushed prices in DXY right back down to support at 91.80 ahead of tomorrow’s CPI and Advance Retails Sales releases.

- We then looked at EUR/USD, which also had a theme to work with earlier on the day. ECB meeting minutes from the December rate decision were released, and there was an indication that the bank may be readying changes to the language in their statements to reflect the continued growth in the Euro-Zone economy. This was largely inferred to mean that taper or, perhaps even talk of stimulus exit may be on the horizon, and this provided a bullish bump to the single currency. This opens the door for topside continuation in EUR/USD, and we looked at what could be an interesting area of support as we go into tomorrow’s data in the effort of looking at bullish exposure.

- We then moved over to EUR/JPY, which also saw that bullish-Euro theme begin to price-in this morning. We discussed this setup in yesterday’s technical article, and in there we pointed out two areas of potential support in the pair. The first was a trend-line projection, and the second was prior range support. Prices ran into that trend-line projection earlier this morning, at which point buyers started to step-in. We discussed this setup again in this morning’s Market Talk, and in today’s webinar we looked at an even more current view on the setup.

- We then looked at GBP/USD, which is holding on to support around 1.3500. But notable is the lack of bullish response while support was so commonplace this week. This gives the appearance of any strength that’s been seen in the pair being more derivative of USD-weakness rather than Sterling strength, and we looked at a conditional setup in order to let the pair develop a bit more before looking to take on top-side or bullish risk.

- We then looked at GBP/JPY as we moved deeper into Yen-pairs. Yen strength has been a relevant theme this week, largely on the basis of inference being drawn from the BoJ buying fewer long-dated bonds earlier this week. Markets appear to be extrapolating that this may be some sign of a ‘stealth taper’, where the BoJ is slowing bond purchases as economic growth shows with a bit more consistency. But – to date, the BoJ has given no signal of as such, and as recently as a few months ago we had the bank recommitting to stimulus with the sole dissenting vote at the bank looking for even more stimulus. If support holds above 150.00 in the pair, a fade setup of this week’s weakness could be an interesting setup for the week ahead.

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

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