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Dollar Breakout Pulls Back as US Stocks Swan Dive Post-Powell

Dollar Breakout Pulls Back as US Stocks Swan Dive Post-Powell

2018-03-01 20:08:00
James Stanley, Strategist
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In this webinar, we used price action to look at macro markets in the wake of new Fed Chair Jerome Powell’s Humphrey Hawkins testimony. The Semiannual Monetary Report to Congress has helped to craft some interesting moves across global markets, with US equities sliding-lower while the US Dollar is holding on to a legitimate frame of strength. Also of interest is a developing situation around the Japanese Yen, and the British Pound has been taking a drubbing even in-light of the Bank of England’s hawkish shift in February.

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US Dollar with Bullish Potential

We started off with DXY, looking at the continuation of strength that’s shown on the hourly and four hour charts. This has entailed a bullish break of a bearish trend-line, and near-term price action appears to be trying to garner support around prior points of resistance. This keeps the door open for shorter-term bullish strategies behind USD; but longer-term the concept of bearish continuation remains workable, as well. So, rather than punting on the Greenback we looked at both sides of USD in various currency pairs in the effort of devising strategy for next week.

US Stocks Taking a Hit

One of the highlights of the two days of testimony from Mr. Powell so far has been the implication around the ‘Fed Put.’ Mr. Powell addressed this head-on, saying that the bank wasn’t all too concerned with short-term volatility. If this does remain the case, it would be quite the twist from a Yellen-led Fed that showed more than once that the bank will back off rate hike plans to calm equity markets.

We’ve been following the S&P 500, and when starting the webinar the index was finding a bit of support off of last week’s lows around 2684. We were looking at a Fibonacci level at 2662, and by the end of the webinar prices had already made the leap-lower. This is a dip that equity investors will likely want to be very, very careful around. Buy the dip may be morphing into ‘sell the rip.’

EUR/USD Finds Fib Support Around Prior Swing-Low

We’ve been following the downward scaling through prior points of range support and resistance in the pair, and since yesterday EUR/USD has moved down to test a swing-low that provided quite a bit of support in January. This level comes in at 1.2167, and this is the 50% retracement of the ‘ECB QE’ move, taking the 2014 high down to the 2017 low. This opens the door to a near-term bounce that could offer an area of lower-high resistance below the 1.2335-1.2350 zone we had looked at earlier in the week. The area that I’m looking for that lower-high resistance to post-in would be between 1.2250-1.2281.

GBP/USD Shreds Through Support – Reassess

Short-term price action in Cable has been nasty of recent. So, accordingly, we cast our gaze to longer-term charts in the effort of working with that bigger picture trend. The support zone that we were following was violated yesterday, and this nullified bullish setups in the pair. At this stage, the short-side is challenged by no near-by swing-highs for stop placement. There could be a deeper area of support that could make the long-side attractive, and that area runs from 1.3590-1.3658.

AUD/USD Bounces From Fresh Two-Month Lows

The pair that we’ve been following for USD-strength has been AUD/USD, and this set a fresh two-month low earlier this morning, shortly after the Euro open. We looked at strategy for bearish continuation, focusing on a couple of zones for lower-high resistance. The first is around .7780-.7792 and the second is around .7825.

NZD/USD Falls From Fib Resistance to Catch Fib Support

There are two longer-term Fibonacci studies of relevance in the pair, and the level at .7335 has had a tendency to help produce resistance over the past couple of years. We looked at the pair on Tuesday as prices had just started to trade below that level, and within short order another Fib level from a different study came into play around .7200. We looked at strategy for short-side continuation in the pair, targeting a deeper move towards .7050 and then .6925.

USD/CAD Nestling Up to Resistance

There’s some CAD data tomorrow and the Canadian Dollar is extremely weak. The big driver here appears to be a dovish BoC; and we’re fast approaching an area that had helped to show resistance on multiple occasions last year. This area of resistance is around the 1.2900 figure, and failures at or around resistance can be used to work-in to bearish reversals in the pair.

USD/JPY Tempts the Symmetrical Wedge

We’ve been talking about the Yen quite a bit over the past two weeks, and this week the currency really started to show gains against both the Euro and British Pound. But against the US Dollar, prices are relatively range-bound and that Yen-strength hasn’t been quite so active here. A likely contributing factor is the multi-month symmetrical wedge pattern that had started to show some support in USD/JPY a couple of weeks ago. Since that came into play, bears have been unable to craft any new lows; but if we do get a break below 105.50 or, perhaps more to the point 105.00, the door could open to considerably more.

GBP/JPY Opens the Floodgates

GBP/JPY broke-below the post Brexit trend-line yesterday, and as we’d previously written, a breach below could lead to significantly more bearish movement. This bearish drive moved all the way down to a key level from last year around 147.04, and even that has been unable to hold the tide of selling. We looked at a couple of levels that could be used for lower-high resistance in bearish continuation strategies.

EUR/JPY

Similar to GBP/JPY, Yen strength has been showing quite viscerally and this is something that would be difficult for traders to fight. We looked at a couple of different levels that can be used for short-side continuation strategies in the bearish trend in EUR/JPY.

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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