In this webinar, we looked at price action setups around the US Dollar as we approach the release of April Non-Farm Payroll numbers. The US Dollar is in the midst of a strong three-week run that has helped to craft fresh 2018 highs. Interestingly, the bullish driver here behind the Greenback appeared to emanate more from falling inflation and dovish Central Banks in Europe and the UK. This brings questions to the overbought nature of the Dollar as we approach tomorrow’s NFP release, and if we do see a continuation of USD-strength on the back of stronger employment numbers and stronger wage growth, US equities may show an element of vulnerability.
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US Dollar Breaks the Prior Range And Runs to Fresh 2018 Highs
It’s been a busy past few weeks for the US Dollar, and the Greenback has bumped-up by as much as 4% from the mid-April lows. Many are attributing this move to continued strength in US data, key of which has been stronger inflation. But that narrative may not quite fit, as that CPI print in the US came-in around a week before this bullish run really got started. That appeared to take place around the UK inflation print and that theme furthered on the back of a) a dovish Mark Carney b) a dovish Mario Draghi that appeared non-committal to stimulus exit and then c) a nasty print of UK GDP.
Collectively, these themes have helped to create a sharp topside move in the Dollar that may not be sustainable. An aggressively-sloped trend-line on the Daily chart indicates just how strong that push has been; and we’ve started to see overbought readings on longer-term charts, such as the Daily. This opens the door to both sides of USD, with potential setups for both bullish and bearish scenarios.
US Equities with Vulnerability to NFP
Yesterday’s FOMC announcement helped to bring on another bearish move in the S&P 500, and this is becoming increasingly normal after similar scenarios at previous FOMC rate decisions. This took place around the February non-move (February 1st), as well as the March hike (March 21st). This showed up again yesterday, and given the pick-up in volatility that was seen as we opened into Q2, US equities appear to be displaying heightened sensitivity to themes of stronger US inflation, a more hawkish Fed, and a stronger US Dollar.
If we do see a strong beat in tomorrow’s report, including a strong showing in Average Hourly Earnings; we can see selling pressure come back into US equities in a more noticeable manner. The item of interest in the S&P is the February swing-low at 2530. The index retains a bullish, albeit congested backdrop until that level is taken-out.
EUR/USD Grasping at 1.2000
Earlier in the week we looked at support potential in EUR/USD around the 1.2000 psychological level. Prices have posed the bearish push to this price. We scrolled down to a shorter-term chart to show how short-term resistance has started to show off of 1.2000 and this would highlight that topside isn’t yet that attractive in the pair. But – we did have a short-term higher-low to work with, and if buyers are in-fact able to push back above 1.2000, reversal trades in the pair can become attractive as we move towards tomorrow’s NFP report. Of note is the oversold reading on RSI on the Daily EUR/USD chart, and that’s something that hasn’t happened since around the US Presidential Election in November of 2016.
GBP/USD with Deeper Support Potential
GBP/USD is showing some similar characteristics to the setup in EUR/USD, but perhaps with a bit less potential for strength with current levels. We looked at the level around 1.3587 earlier in the week, and we can still witness a bit of struggle taking place around that spot on the chart. A bit deeper, however, is a more attractive support level around 1.3500. This is a confluent level as just 22 pips lower is the 50% retracement of the ‘Brexit move’, and this price had previously helped to offer an attractive area of swing-low support in January. If we do see this level come into play tomorrow around Non-Farm Payrolls, the door opens for bullish reversals in GBP/USD.
USD/CHF Rallying into Parity (1.0000)
This is on the long-USD side of the coin, and this move has been almost parabolic as there has been nary a pullback over the past couple of weeks. Prices are now testing the parity level, and this is something that may hold for long enough to produce some element of a pullback. We looked at potential support around .9920 and .9870 for bullish continuation potential, targeting a re-test of parity and, potentially a topside breakout above that level.
AUD/USD With Bear-Flag Like Characteristics
Commodity currency pairs could be an attractive venue for a continuation of USD-strength. We’ve been following the short-side of AUD/USD, and the pair put in a fresh ten-month low earlier in the week when testing below the .7500 level. Prices have since moved back above this psychological level, and we looked at a bullish trend-line that’s helping to guide those lows-higher. This can open up potential short-side setups around prior points of resistance, such as .7600 or, perhaps even the under-side of the two-year bullish trend-line that was taken out in mid-April.
NZD/USD Trouble with the Big Figure
NZD/USD has been one of our favored long-USD candidates, and the pair is coming off of fresh four-month lows set just yesterday. There’s still some downside potential within the longer-term range, targeting towards .6820-.6870, but prices may need a bit more of a pullback before bearish continuation can become attractive again. We looked at two potential lower-high resistance levels around .7095 and .7153.
USD/CAD Range with Break Potential
In USD/CAD, we looked at a familiar area on the chart that runs from a couple of Fibonacci levels at 1.2874 up to 1.2928. This area had previously helped to carve out highs in Q4 of last year, and prices are now back to resisting on the under-side of this zone.
GBP/JPY Continues to Work Within Confines of Fibonacci From February Sell-Off
GBP/JPY continues in a rather volatile manner, and for trend and momentum traders this can be an attractive thing. Of note has been how the pair has respected a number of the Fibonacci retracement levels taken from the February sell-off. Ahead of today’s webinar, we’d seen the 23.6% retracement of that move come-into play, and a bit lower we have a potential support level around the 14.4% retracement. This can keep the door open to bearish continuation in the pair, particularly as signs of risk aversion continue to show.
To read more:
Are you looking for longer-term analysis on 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 USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.
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--- Written by James Stanley, Strategist for DailyFX.com
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