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The U.S. Dollar Pain Trade Continues

The U.S. Dollar Pain Trade Continues

2018-01-16 20:00:00
James Stanley, Strategist
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U.S. Dollar weakness continues as one of the most pronounced themes across global markets. The Greenback is putting in a modest rebound after having sold-off to a fresh three-year-low; but will this move give enough pause for support to show-up in major pairs of EUR/USD and GBP/USD?

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- The first market that we looked at was the U.S. Dollar as ‘DXY’. The Dollar pain trade continues as USD has punched down to a fresh three-year-low after Friday’s CPI and Advance Retail Sales prints; and this exposes deeper supports at 90.00 and 88.42 on DXY. The bigger question here is whether that prior area of support that runs from 91.01-91.36 may show up as resistance so that bearish continuation setups could be triggered.

- We then moved over to EUR/USD and we looked at a zone of interest that runs from 1.2092-1.2167. The 1.2092 level was the 2017 high, and there are Fibonacci levels of interest at 1.2134 and 1.2167. The bullish run in the pair on Friday/Monday shot right through those levels, and we haven’t yet seen prices digest enough of that bullish move to produce support around this zone. But this is something to keep on the radar in the coming days, and triggers can be investigated with wicks intersecting through the relevant zone on closed 4-hour or daily candles.

- We then looked at GBP/USD, which similar to EUR/USD just keeps chugging higher. The item of interest here appears to be around a mid-line of the bullish trend channel that started in February/March of 2017, and this currently projects around ~1.3715. Also of interest are potential supports around 1.3658 and a bit deeper around 1.3613. For more information behind this chart, please check out our Market Talk article published earlier in the day.

- EUR/GBP has been an interesting setup of recent, as a range has developed with a good deal of consistency. The range appears to be governed by Fibonacci levels taken from the April – August, 2017 major move, with support showing around the 50% retracement and resistance near the 38.2% level. This can open the door for short-side setups in looking for prices to move deeper towards support while continuing this range.

- We then looked at EUR/JPY, which may be a more interesting way of playing a pullback into the recent Euro move. We looked at the pair last week when prices were running along a projected trend-line from last year, and that support led into a rather brisk continuation setup. With prices pulling back, the prior area of resistance around 134.41, which is the 61.8% retracement of the 2014-2016 major move, becomes an interesting point of potential support for a higher-low in the pair.

- We then looked at GBP/JPY from a similar perspective. Last week we looked for support above the 150.00 level in the effort of playing topside in the pair. Prices are now showing short-term resistance around the 152.80 area, and this should, at the very least, give pause to the bullish continuation thesis. A pullback with higher-low support opens the door for bullish exposure in GBP/JPY.

- EUR/AUD may be a more attractive area for short-side Euro exposure. Given retail sentiment, retail traders are trying to sell the Euro, but have been facing challenges by an even weaker U.S. Dollar or Japanese Yen. The Australian Dollar, meanwhile, has been fairly strong; and continued resistance can keep the door open for near-term short-side Euro setups.

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

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