Bearish price action re-emerged in the US Dollar ahead of tomorrow’s US Inflation figures. But that weakness appears to be unevenly distributed amongst major currency pairs, making for a series of interesting setups to be worked with for the remainder of this week.

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US Inflation is On Deck

Tomorrow brings US inflation figures for the month of January, and this print will likely garner attention across markets. Last week’s sell-off in stocks really seemed to hasten around the wage growth seen in the Non-Farm Payrolls report released earlier in the month, and if we do see continued strength in US inflation, this could create some worry across Stock and Bond markets. While those risk trends have continued to show signs of recovery off of last week’s lows, there’s still an element of vulnerability across macro markets, and it seems as though inflation in the US is a big push point for such a theme.

US Dollar Dilemma

The US Dollar has been in a strong down-trend since early last year. A bit of support began to show as prices moved-higher for a couple of months in September and October, but that bearish trend re-engaged in December and drove the Greenback to fresh lows throughout January. But in that drive, DXY ran into a big Fibonacci level at 88.42, and since then bears have been unable to take out the low. A bit of higher-low support developed, and last week we saw DXY climb above the 90.00 level. That strength has been faded as the Dollar broke-down earlier this morning, but this weakness appears to be unevenly distributed amongst the majors, and this helped to set the tables for the various scenarios we looked at across a series of FX pairs.

EUR/USD Bulls Come Back to Life

To illustrate that return of USD weakness, we looked at short-term price action in EURUSD as the pair climbs above prior support. Bigger picture, a resistance test at or around 1.2500 could be attractive for short-side setups but, until then, the prospect of strength remains; and this could be one of the more interesting short-side USD sets.

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USDCHF like EUR/USD but perhaps a bit cleaner

A similar theme of USD-weakness has been evident against the Swiss Franc, but the move here has arguably been a bit cleaner. We looked into USD/CHF yesterday as prices broke below a bear flag formation.

GBP/USD Poses a Meager Bounce as USD Weakness Returns

In contrast to the stream of strength in EUR/USD, we have a rather meager bounce in the British Pound. This weakening backdrop has showed up as a) The Bank of England went hawkish and b) January inflation printed above 3%; both of which would generally be considered bullish factors for the British Pound. But, that has not happened yet, and we looked at a longer-term zone of potential support that could be usable for trend continuation strategies. That zone runs from 1.3589-1.3658, and this could allow for additional down-side in short-term trends before bullish positions become favored again. This would be opposite of the short-term stance in EUR/USD, enabling traders a series of interesting exposure scenarios.

AUD/USD Shows Bearish Drive

We looked at the short-side of AUD/USD a couple of different times over the past few weeks, and since a false breakout showed-up around the two-year high in latter-January, bears have been in-control. We looked at an attractive area of potential resistance that runs from the approximate .7930-.7950.

USD/JPY: Big Beaarish Break

I leave this rather opaque because, frankly, I’m not sure what’s creating this element of Yen strength so, when in doubt, look elsewhere. At the very least, this additional strength that’s showed-up should question the prospect of short-Yen continuation, and that’s precisely how I’m trying to use it. This removes attraction from trading those prior themes of EUR/JPY and GBP/JPY strength and, perhaps, even opens the door to bearish scenarios.

Gold as an Anti-Dollar Play

Gold prices broke through the neckline of a head and shoulders pattern last week, and that bearish move continued until support around $1,307 began to show. Prices have rallied up to a bearish trend-line, keeping the door open for short-side exposure. For traders that do want to look at a USD-strength theme, the short-side of Gold could remain as attractive.

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

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