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US Dollar Price Action Setups After USD Sets Fresh 11-Month High

US Dollar Price Action Setups After USD Sets Fresh 11-Month High

James Stanley, Senior Strategist

In this webinar, we looked at price action setups after the US Dollar ran-up to a fresh 11-month high earlier this morning. While last week’s rate hike out of the FOMC did little to inspire Dollar bulls, the ECB rate decision the following morning seemed to help, as the Euro got smashed and flows ran into the US Dollar. The Greenback has continued that upward trajectory so far this week, setting a fresh 11-month high after prices crossed the 95.15 area on the chart.

Talking Points:

- If you’re looking to improve your trading approach, our Traits of Successful Traders research could help. This is based on research derived from actual results from real traders, and this is available to any trader completely free-of-charge.

- If you’re looking for a primer on the FX market, we can help. To get a ground-up explanation behind the Forex market, please click here to access our New to FX Trading Guide.

If you’d like to sign up for our webinars, we host an event on Tuesday and Thursday, each of which can be accessed from the below links:

Tuesday: Tuesday, 1PM ET

Thursday: Thursday 1PM ET

US Dollar Fresh 11-Month Highs After ECB

Last week saw a fairly hawkish Fed hike rates while warning that two more could be on the way in second half of this year. The bank also forecast an additional three hikes next year, amounting to a total of 5 potential rate hikes or 125 basis points of adjustment out to the end of 2019. Nonetheless, this hawkish twist did little to inspire USD-bulls. The following morning, however, changed that as the ECB took a rather dovish approach to stimulus exit by saying that they’re anticipating keeping rates at current levels ‘at least through the summer of 2019.’ That would imply a potential move in Q4 of next year, which means we may have one rate hike out of the ECB in the time that we have five more moves from the Fed. This helped the Dollar to firm, and that strength has continued into this week.

Collectively, this has helped the Dollar rush up to a fresh 11-month high, with the area around 96.50 the last remaining area to mount before we have fresh yearly highs. We looked at various ways to implement a balanced approach across the US Dollar in the following setups.

EUR/USD Could be Setting a Short-Term Bear Trap

The 1.1500 level remains prominently underneath the 11-month low in EUR/USD, and last week helped prices to break-down below the key zone of prior support that runs from 1.1685-1.1736. While there are few cases to be made for bullish plays on EUR/USD, sellers have continued to show reticence as price has moved below 1.1600, and this may be highlighting how the pair needs a deeper pullback before bears are ready to push down to fresh lows.

This can open up two different ways of handling the short side of EUR/USD: Either looking for bearish breaks below 1.1500 or, by looking for prices to pull back into that prior zone of support that runs from 1.1685-1.1736, at which point we have possible lower-high resistance.

GBP/USD Bear Flag Break Ahead of BoE

The Bank of England has a rate decision on the calendar for this Thursday, and there aren’t any actual expectations for a hike. More pressing is whether the bank begins to lay the groundwork for a possible adjustment in August; but given the scope of UK data of recent, that doesn’t appear to be a likely scenario. The British Pound is also beset by continued Brexit volatility, and this is yet another factor that can continue to constrain the long side of the pair. We looked at the prospect of bearish breakouts down towards the 1.3000 psychological level in our technical article on the pair yesterday entitled, GBP/USD: Cable Attempts to Carve Out Support Ahead of BoE.

USD/CHF With Bearish Potential

This is one of the more interesting short-side USD setups at the moment, and there’s a Swiss National Bank rate decision on the calendar for this Thursday. Switzerland saw its highest rate of inflation since 2011 in May; and USD/CHF has flipped from a near-parabolic bullish trend that ran into the month of May as a bearish theme that could bring some continuation potential. We had looked at this as one of our FX Setups for This Week, and that bearish potential remains.

USD/JPY Tests Back-Below 110.00 As Risk Aversion Picks Up

Also in our FX Setups for This Week, we looked at the prospect of Yen-strength in response to the growing risk aversion that started to show after last week’s ECB rate decision. We focused-in on GBP/JPY, but USD/JPY has put in similar, albeit more abbreviated bearish hues today. Prices broke below a bullish channel, and now appear to be getting lower-high resistance on the hourly chart from an area of prior support. This can open the door to short-side setups down to the Fibonacci level around 109.25. But, perhaps more proactively, this can open the possibility of long-Yen setups elsewhere for plays of continued risk aversion.

AUD/USD Smashes Below Support

I was previously looking at this as an attractive short-USD candidate, but that setup has changed significantly over the past week. At this point, bearish strategies appear to be favored and prices have just run down to a fresh low. We looked at the possibility of playing pullbacks to a prior area of support that may help to formulate lower-high resistance. Longer-term, the area around .7200 appears attractive for support.

NZD/USD Retains Range Potential

The longer-term range remains in NZD/USD, but given near-term dynamics, timing the bullish side of that move may take a little more time. On a shorter-term basis, prices have splashed lower and there’s less of a bullish case right now. The key is watching for a hold of support from .6820-.6870, and waiting for short-term price action to begin showing a bullish theme with higher-highs and higher-lows on the hourly chart. We’re not quite there yet, but that potential remains until the range is broken.

GBP/JPY for Continued Risk Aversion

We looked at this one for risk aversion scenarios this week, and that potential remains. The challenge now is finding re-entry, and we looked at a few different areas of interest, specifically pointing out 145.33 and 145.80, as each were relevant swing-lows when that bearish move was developing.

Dow Nearing Key Support – Can Buyers Hold the Low?

We looked at a short-side setup in the Dow last week, and both targets have been met while prices continued to trickle down to support zone that we’ve been watching. As of our webinar, prices had not yet met support, but this keeps the door open for bullish strategies as we’d written earlier this morning. For bearish plays in the Dow, giving up that support around 24,384 could be key, as this could open the door for a move down to 24,144 or perhaps even 23,847.

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

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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