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Forex: Price Action Setups Ahead of FOMC, ECB Minutes

Forex: Price Action Setups Ahead of FOMC, ECB Minutes

2018-02-20 20:06:00
James Stanley, Currency Strategist
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In this webinar, we looked at FX markets ahead of this week’s economic calendar events, the highlight of which appear to be the release of meeting minutes from recent rate decisions out of the Fed and ECB. Also on the calendar for later in the week and unlikely to receive the same fanfare as Europe or US items is Japanese inflation for the month of January, as this has been a big push point of recent on the Yen.

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This Week’s Economic Calendar

This was a holiday-shortened week as the US observed President’s Day on Monday. The highlights on this week’s economic calendar are FOMC and ECB Meeting Minutes (released on Wednesday and Thursday, respectively), followed by the release of Japanese inflation for the month of January.

Don’t Ignore Japanese Inflation for Yen-pairs

While many eyes will be focused intently on the US and Europe for those meeting minutes, Japanese inflation has the potential to bring even more volatility. Prior themes of Yen-weakness haven’t really been the same since Japan saw inflation at one-percent in December. At this point, the Bank of Japan has shown no willingness to budge from their outsized stimulus program, but as those forces of inflation continue to hold and, in some cases, continue to pick up steam, markets are continuing to read the tea leaves towards an eventual exit. This isn’t too different from what happened around Europe last year as investors pushed the currency higher even as the ECB refuted tapering or stimulus withdrawal theories.

USD/JPY Weekly Chart: Symmetrical Wedge Building Since Mid-2015

usdjpy weekly chart

EUR/JPY Digging Deeper into Long-Term Support

That theme of Euro-strength persisted for most of last year, and while many were watching this through EUR/USD, a perhaps cleaner trend began to show against the Japanese Yen. Even when the ECB extended stimulus in October, EUR/JPY remained at a big support zone until bulls were able to push prices higher. But over the past two weeks this support has come back, first acting as a cushion to a threatening sell-off when prices were plunging two weeks ago. But – after that support came into play, buyers have been unable to push up to a new high, continuing to face seller resistance at lower points of reference.

GBP/JPY Bounces From Post-Brexit Trend-Line

We looked at a big point of support last week in GBP/JPY. Up to this point, support has held, but the bullish response has been lackluster, even with prices scaling back-above the 150.00 psychological level. We looked at a couple of points of potential resistance that can keep the door open for short-side setups.

US Dollar Pushing Back to 90.00

The US Dollar went through an aggressive sell-off in the first four trading days of last week. But that final day of last week produced a bullish engulfing candlestick on DXY, and that strength has largely held since then. Short term price action in DXY can be used to justify a long stance, even though the longer-term down-trend remains. As such, we looked at setups on either side of the Dollar for the remainder of this week.

EUR/USD Holding Support by a Thread

We said the same earlier in the month at a similar support level in the pair, and in that scenario prices scaled-down to our second and third support level before buyers came-back last week. We looked at the same levels for subordinated support in the pair, around 1.2281 and 1.2213. If neither hold, the big figure at 1.2000 becomes attractive for support plays in the pair.

GBP/USD Messy at 1.4000

We looked at support plays off of 1.4000 last week, and while that support has held so far, the deeper tests are a bit discouraging for bullish continuation strategies. Instead, we’re looking for support around a prior level of interest, with a higher low above the 1.3800 psychological level.

USD/CHF as a Cleaner Option for USD-Weakness

We’ve been following USD/CHF for some time as a more attractive option for USD-weakness versus other, more coagulated setups in GBP/USD or even EUR/USD. USD/CHF had a beautiful bearish setup last week, posing a downside break of a bear flag formation before price action pushed down to fresh two-year lows. We looked at two different areas to play continuation of this theme in the pair.

AUD/USD for USD-Strength Strategies

On the other side of the US Dollar, we looked at AUD/USD. AUD/USD has been one of our more favored options for USD-strength, as the pair put in an aggressive bearish reversal in latter-January that really started to show prominently when USD held on to some strength in early-February. Last week’s retracement came-up to a key point of confluent resistance, and this can keep the door open for short-side setups in the pair.

NZD/USD Short-Term Support at a Big Level of Long-Term Resistance

The price of .7335 is huge in NZD/USD, and has been since the second half of 2016. This is the start of a longer-term zone of resistance, and prices are now finding a bit of short-term support there. If prices do break below this area, the door is opened for short-side in NZD/USD.

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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