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US Dollar: Break or Bounce, Setups on Both Sides

US Dollar: Break or Bounce, Setups on Both Sides

2018-05-22 19:02:00
James Stanley, Strategist
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In this webinar, we looked at price action setups in the US Dollar after a pullback in the recent month-long bullish trend. This produces the possibility of bullish continuation, but that’s not the only possible setup, as short-side themes remain open of both very short and longer-term varieties. We looked at each in this webinar, while also extrapolating that against various currency pairs in the effort of seeking the most amenable venues for each scenario.

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US Dollar Pulls Back to Support at Prior Resistance – Setups on Both Sides

The US Dollar up-trend ran into resistance shortly after this week’s open, taking place around the 94.00 level on DXY. This led to a quick pull back that we looked at yesterday, and that pullback move continued into this morning with a print of a fresh short-term low around 93.30. This keeps the door open for bearish momentum strategies on a short-term basis, while the intermediate-term vantage point will likely want to focus on the possibility of bullish continuation after a check-back to support. Below, we look at a variety of setups for both scenarios of USD-strength and USD-weakness.

EUR/USD Runs into Long-Term Support – Bullish Potential

The down-side run in EUR/USD ended up getting pretty aggressive. We looked at a short-side setup off of 1.2000 resistance last week, and that led into a rather concerted down-side run that propelled prices to a familiar area of prior support. This area comes from two different 38.2% Fibonacci retracement levels, and this zone helped to hold the lows in the pair on multiple instances in August and September of last year; only yielding in October after the ECB’s rate decision. After a quick bit of resistance, prices broke back-above, gave another couple of instances of support before rushing up to 1.2500 after the open of 2018. Now we’re back to support, and this opens the door for reversal setups in EUR/USD.

GBP/USD Resistance at Prior Support Ahead of Heavy Data Outlay

We were following the 1.3500 area of support in GBP/USD over the past couple weeks, and surprisingly this area largely held the lows through a series of fairly negative drivers. It wasn’t until the surprise announcement from Scottish PM Nicola Sturgeon around the possibility of Scottish Independence that the pair finally broke below that level, and this morning gave us a quick iteration of resistance at that prior area of support. This is along the lines of the setup we looked at yesterday in the article, GBP/USD: Pound Plummets to 2018 Low Ahead of Big Week of Data. This keeps the door open for short-side continuation in Cable, and tomorrow marks the start of a couple of high-impact data releases of relevance, with April inflation numbers released tomorrow morning. Friday brings Q1 GDP, so the framework for continued volatility is there.

AUD/USD

We’d looked at Aussie (AUD/USD) as a topside setup last week, and there may be a bit more juice left in this squeeze. Of issue is the potential for resistance from .7650-.7680. This was a fairly hard area of support when the pair was making its way down, so it would be imprudent to look for topside targets too far above that area at this point. That also caps potential upside, but we looked at a couple of different ways of handling the long side of the pair.

NZD/USD With Longer-Term Range-Fill Potential

NZD/USD put in a sharp bearish move as that USD-strength was starting to show in mid-April, and after a really bearish five weeks of price action, we’re now in the support side of that range. This can start to open the door to bullish exposure under the expectation for that range to continue with its back-and-forth price action.

USD/CAD at Support

We were previously following the zone of support that runs from 1.2729-1.2758, and prices have twice put in bounces from the topside of this zone. This keeps the pair in a shorter-term range on the hourly that can be usable for strategies of USD-strength.

USD/CHF – Turn Potential?

This thing moved up in a near-parabolic fashion as that Dollar-strength was pricing in, and after a bit of fraught above the parity level, prices have started to tip-lower. We looked at how prior support/resistance structure can be used to play a reversal of that prior bullish trend.

EUR/JPY with Bearish Potential

This could be a more interesting way to look for short-Euro or long-Yen exposure than the relevant USD-pairs, and we looked at how that prior area of support that ran from 131.43-132.05 can be used to help base-in to bearish approaches in the pair.

GBP/JPY with Bearish Potential sub-150.00

There’s a bear flag brewing here, and this keeps the short-side of the pair a bit more attractive than what might be possible on the bullish side of the coin. For strength – I’d want to see a sustained break back above 150.00; but until then, this remains workable on the short-side.

Gold Ranges After Break to 2018 Lows

Gold would be another area of interest for long-USD setups, as Gold prices broke down to a fresh 2018 low last week, and have since been range-bound. This can make short-side continuation at current levels less-optimal given the distance from prior resistance swings, but a re-test of the $1300 level that runs up to $1310 can open the door for such.

Dow Jones With Some Remaining Opening Gap

We looked at this setup in the Dow Jones Industrial Average earlier today: US Equities broke-out to start this week, and in both S&P and the Dow Jones there are remaining unfilled gaps. This can keep the door open for shorter-term bearish strategies in US equities.

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.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

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

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