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US Dollar Price Action Setups as End of Q2 Nears

US Dollar Price Action Setups as End of Q2 Nears

2018-06-26 19:05:00
James Stanley, Currency Strategist
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In this webinar, we looked at price action setups around the US Dollar as we approach the end of Q2. Probably one of the more notable takeaways from this quarter has been a re-emergence of US Dollar strength, and this has come along with a big bearish move in the Euro, as driven by a combination of a dovish European Central Bank and European political risk. These themes could carry continuation power into Q3 and the second half of this year, and in this webinar, we looked across the US Dollar in the effort of devising strategy with workable trends in various major currency pairs.

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 Bounce From Fibonacci Support Zone

We’ve been following a zone of potential support in DXY that runs from 94.20-94.30. The price of 94.20 is the 38.2% retracement of the 2017-2018 down-trend, and 94.30 is the 38.2% retracement of the 2014-2017 bullish move. This confluent area had helped to offer resistance in October and December of last year, along with a brief iteration of resistance earlier in June when prices were breaking higher. After last week’s pullback, price action caught support at this zone and has since bumped-higher.

This is not a setup without risk, as we have high-impact USD data on the calendar every day for the remainder of this week, and we also have the potential of quarter-end flows to contend with, which could bring on a counter-trend movement as traders close position ahead of quarter-end. In this webinar, we looked at setups on either side of the US Dollar.

US Dollar via ‘DXY’ Daily Chart: Bounce From Confluent Fibonacci Support

US Dollar Daily Chart USD

Chart prepared by James Stanley

EUR/USD Still Carries ‘Bear Trap’ Potential

I called EUR/USD a bear trap last Tuesday, and sure enough after a failed attempt to take out the 11-month low, prices have rallied back into a key zone of prior support. We looked at this setup yesterday, and again today, but as we looked at in the webinar, the area of resistance that appears most attractive for stop placement is up around 1.1821-1.1855, which is simply too far away from current prices to adequately justify short-side positioning. We did look at the potential for short-side breakout entries on crosses below 1.1600; but reasonably this pair could retrace-higher for a bit longer before the bigger picture bearish trend is ready to run.

GBP/USD with Bearish Potential

In yesterday’s FX Setups for This Week, we looked at the short-side of GBP/USD as one of the more attractive venues for long-USD exposure. While EUR/USD was putting in bullish connotations (higher lows) after last Wednesday, GBP/USD has remained fairly bearish, holding another resistance test around 1.3304. The first target on the setup was at 1.3200, and this was met during the webinar, and there is one target remaining at 1.3117. This could still be worked with using short-side breakout entries on prints to fresh near-term lows.

USD/CHF with Bearish Potential

This was the short-side USD setup that we looked at in yesterday’s FX Setups for This Week, and this setup is backed by the lower-highs that printed in June below the parity figure, and this goes along with that tonality change that showed in the pair earlier in Q2. While USD/CHF came into the second quarter in the midst of a near-parabolic-like run that lasted all the way into the second week of May, Franc strength began to become a bit more prominent; and as we showed in the a-b between DXY and USD/CHF, Franc strength has started to show some pull in the pair. Prices were in the process of testing the topside of the resistance zone that we were looking at in yesterday’s article, and we looked at the prospect of trying to time short-side entries in the setup.

AUD/USD Smashed to Fresh Lows – Watch for .7200

AUD/USD also saw a tonality change in the month of June. After previously being one of the more attractive short-USD candidates, prices put in a voluminous drop throughout the month to run down to fresh yearly lows. The complication with selling at the moment is the fact that prices are pegged so close to that yearly low while still being fairly far away from that most recent swing-high. A bit lower on the chart is a big zone around the .7200-handle, as there are two different Fibonacci levels within close proximity, and this area had also helped to elicit fairly visible bullish reversals in June and December of 2016.

USD/JPY Remains Messy

We’d looked at USD/JPY and the Yen in this week’s fundamental forecast, and as we discussed there, near-term dynamics in the pair remain rather messy. Prices continue to volley around the 110.00 psychological level but, given short-term price action there is a lack of trend to work with. More interesting could be a bearish break below 109.26, which could open the door for short-side setups. Although that theme may be a bit more attractive elsewhere, such as looking for Yen strength against either the Euro or the British Pound.

NZD/USD Longer-Term Range Fill Potential

There’s an RBNZ rate decision a little later today, and this very much constrained our look at the pair. The longer-term range that started in 2016 still applies, but short-term price action remains bearish and prices have been digging deeper into this long-term zone of support. This theme could be helped by the RBNZ, but prices would need to pose a bullish reversal of this short-term momentum, which could then help to re-open the door to longer-term themes of strength. But until then, remains skeptical and let price action show you the theme before chasing it.

NZD/USD Weekly Chart: Digging Deeper into Support Ahead of RBNZ

NZDUSD nzd/usd weekly chart

Chart prepared by James Stanley

Dow Jones Deeper Support Drive

While the first two months of Q2 saw a sense of calm envelop American equity markets, with buyers coming back to help push the bid across a number of equity indices, matters haven’t been so tame since the Fed’s rate hike earlier in the month. We’d looked at a bearish setup off of a Fibonacci level ahead of that rate decision, and prices have continued to drop ever since, including below a big zone of support that we were looking at last week.

At this stage, the more attractive element of support appears to be coming from the February, April and May bullish trend-line (shown below). This level is confluent with the 76.4% retracement of the April-June move, and buyers showing up here could re-open the door for topside plays in the Dow.

Dow Jones Daily Chart: Approaching Feb, April, May Bullish Trend-Line

Dow Jones Daily Chart DJIA DIA YM

Chart prepared by James Stanley

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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