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Trading the Major's After the US Dollar's CPI-Fueled Rip-and-Dip

Trading the Major's After the US Dollar's CPI-Fueled Rip-and-Dip

2018-02-15 20:02:00
James Stanley, Strategist

In this webinar, we used price action to look at recent moves across the Forex market, using the US Dollar as a focal point as the large portion of our discussion centered around major currency pairs. The Dollar was slammed after yesterday’s better-than-expected Inflation report out of the United States, and this has propelled EUR/USD back up to the 1.2500 level that’s shown a recent tendency to help set resistance.

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Rip and Dip in the US Dollar

Yesterday’s US inflation report showed a 2.1% annualized print for the month of January, exceeding the 1.9% expectation for the fifth consecutive month of at-or-above-target inflation. The initial response was one of strength, as the Greenback quickly firmed above the 90.00 level on DXY. But bears were undeterred, and sellers came-in very quickly to drive prices right back down towards February support. At this point, that bearish move has tapered ahead of the February low which is above the January swing low; so while momentum is aggressively bearish, there is still a bullish case here depending on the counter currency being used.

EUR/USD Back to 1.2500

We looked at EUR/USD testing this major psychological level in the wake of the ECB’s January announcement. This is when the bank warned that change may be on the horizon as inflation remains rather consistent, albeit below-target, in the EU. Another attempt to take out 1.2500 in early-February faltered, and yesterday’s rip produced another lower-high as bulls continue to get bashful around 1.2500. This could be usable in two different ways: First, this opens the door for reversal setups provided that risk levels are properly outlined and held. And second, this produces a context for bullish continuation: If the pair IS able to take out those highs, we can look to this group of lower highs for higher-low support in bullish continuation strategies.

USD/CHF Prints a Fresh Two-Year Low

The pair we’ve been favoring for USD-weakness has been USD/CHF. While USD/CHF has mirrored many of those bearish-Dollar themes like EUR/USD, USD/CHF has been perhaps a bit smoother. We looked at this earlier in the week as prices broke below a bear-flag formation. This came after a retracement showed-up after two-year lows helped to provide support. But with yesterday’s bearish break, we saw that two-year low taken out, and this keeps the door open for short-side USD/CHF continuation. We looked at potential lower-high resistance around .9300 and .9350.

GBP/USD Back Above 1.4000

Earlier in the week, we looked at Cable grinding around a big area of confluent support. Disconcerting was the fact that the recent bullish drivers appeared to do little to bring bulls back to the table. Last week’s hawkish twist at the BoE was quickly faded-out, and the stronger-than-expected inflation print earlier this week seemed to matter little. Yesterday’s USD-weakness has helped to propel the pair, and at this point, one of the few attractive setups could be a short-term support test of the 1.4000 psychological level.

NZD/USD Moves into Resistance Zone

Kiwi-Dollar has been range-bound for some time now. Resistance on the daily or weekly charts has had a tendency to show up in a zone that starts around .7335, which is the 38.2% retracement of the 2009-2011 major move. Price action had run as high as .7430 in both September of last year and January of 2018.

USD/CAD Rests on Fibonacci Support After Trend-Line Resistance

Another short-side USD candidate can be seen in USD/CAD. Current price action is finding a bit of support around the 1.2500 psychological level which runs very closely to the 23.6% retracement of the May-September sell-off in the pair from last year.

AUD/USD Potential Lower-High

While USD strength held on for much of last week, AUD/USD was giving the appearance of a full-fledged reversal. Prices tested the two-year high in late January, and when that breakout failed matters really got nasty as sellers took over. Just a week and a half later and prices had fallen below .7800. Yesterday’s sell-off in USD helped to catapult the pair-up to an interesting area of confluent resistance. This zone runs from .7929 up to .7946, and its taken from two longer-term Fibonacci levels. We looked into this setup in the Analyst Pick published a couple of hours ago.

Gold Prices Catch a Rocket Bid

We’d previously looked at the possibility of short-side continuation in Gold prices after last week’s neckline break of a head and shoulders pattern. That break saw prices move more than $20 below the neckline, but the $1,286 target never came into play, and prices posed a massive rally off of yesterday’s USD-weakness. This would negate bearish stances in Gold in the near-term.

To read more:

Are you looking for longer-term analysis on the Euro, the British Pound or the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on our EUR/USD, GBP/USD, USD/JPY, AUD/USD and U.S. Dollar pages. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

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

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