Pre-NFP Price Action Setups Across the US Dollar
We’re moving deeper into the first week of Q3, and tomorrow brings the first NFP report of the second-half of 2018. As we approach tomorrow’s jobs numbers, the US Dollar is continuing to retrace the bullish trend that had developed in Q2, and this is moving hand-in-hand with a bullish move in EUR/USD. This highlights the tenuous nature of the bullish up-trend as we move deeper into the year, and the possibility of reversal remains, as we looked at last Tuesday. We had previously compared the current scenario to what had happened in EUR/USD in October/November of last year, and as European data continues to print above-expectations, the potential for a bullish move in the Euro continues.
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US Dollar Pulls Back to Key Support Zone Ahead of NFP
We’ve been following a support zone in the US Dollar that runs from 94.20-94.30 (DXY), as each of those levels are taken from 38.2% Fibonacci retracements of a) the 2014-2017 major move and b) the 2017-2018 down-trend. This area has helped to mark swing-highs in October and December of 2017, and more recently has come into play as support, helping to produce a swing-low in late-June that helped to push price back-up to 11-month highs.
As we approach NFP tomorrow, this thing can break in either way: But a deeper area of support that runs around 93.20-93.30 could retain the bullish bias until that zone is taken out by bears. In this webinar, we looked at setups on either side of the Greenback with the goal of having something workable for either scenario of either continuation, or reversal of the US Dollar’s recent strength.
US Dollar via ‘DXY’ Four-Hour Chart: Support Structure in the US Dollar Ahead of NFP
Chart prepared by James Stanley
EUR/USD Continues in Resistance Zone, Higher-Lows Bring Possibility of Further Strength
It was a brutal Q2 for the Euro and EUR/USD. After flying high for much of the prior year, bears came into play around the ECB’s April rate decision and largely remained in control for the duration of the quarter. Coming back into play was a key zone of prior support that runs from 1.1685-1.1736, and this area had helped to hold the lows for much of the latter-third of last year, save for one two-week period.
That two week period in which prices broke-below support took place around the ECB’s October rate decision. This is when the bank extended their stimulus program to September of 2018, and this brought a bearish move as rate hike hopes were quickly dashed. But it was just a couple of weeks later that bulls came back to the party, as a red-hot German GDP report helped prices in EUR/USD to re-break above that prior support zone, and after another couple of tests, buyers were off to the races and pushing up to fresh highs of 1.2500 as we traded in to 2018.
Q2 saw that zone come back into play. First as short-term support, then as resistance, and when we walked into June with rumors beginning to circulate that the ECB might finally announce a play to exit stimulus, the pair re-drove above that zone and held there for the week ahead of ECB. Prices broke-lower around the rate decision, as the announcement to exit QE was divorced from any near-term rate hikes, with the ECB specifically saying that they anticipated keeping rates at current levels ‘at least through the summer of 2019.’ This brought a bearish response, and within a couple of days, EUR/USD had re-tested that 11-month low.
But as we looked at on Tuesday, European data has been showing signs of improvement, and Euro-Zone inflation for the month of June printed at a one-year high of 2%, or the ECB’s target. Could this be producing a situation similar to October/November of last year, where the bearish response is short-lived and soon offset by positive European data, followed by markets and traders trying to get in-front of rate hikes that may be coming sooner rather than later?
EUR/USD Four-Hour Price Chart: Continued Drive within Resistance Zone
Chart prepared by James Stanley
GBP/USD Bounce as 2H 2018 Rate Hike Odds Rise
It was also a brutal quarter for the British Pound. Coming into April hopes were high for a rate hike in May. Those odds deteriorated throughout the month and by the time we got to the May Super Thursday rate decision, the door was open for the BoE to take a familiarly dovish tone.
But the June rate decision brought a bit of hope to Cable bulls as three dissenting votes cast for an immediate rate hike made the prospect of a move in August or November seem a bit more likely. We looked into the matter earlier this morning in the article, GBP/USD Cable Breaks Above Trend-Line on Hawkish Carney Comments.
Much like EUR/USD, price action remains bearish at this point. But – that could change, and this morning we were looking for a topside break above confluent resistance around 1.3315-1.3320 to open the door for such.
GBP/USD Four-Hour Price Chart
Chart prepared by James Stanley
USD/CHF Remains Attractive for Short-USD Scenarios
The level of parity makes the prospect of bearish positioning remain as attractive, although we have had the appearance of CHF-weakness so far in Q3. The risk reward for bearish stances remains attractive, much as we looked at to close Q2.
USD/JPY Still Working-Higher
There’s a bullish trend that appears to be trying to build in USD/JPY, but the pair does remain very near the five-month swing-high around 111.40. We looked at how the pair could ‘clean up’ a bit to open the door for bullish continuation.
AUD/USD Remains Messy – Pick Your Spots
The past week has been quite volatile in Aussie, and this comes fresh on the heels of some strong trends, on both sides of the pair, as we closed out Q2. At this point, the pair is unattractive for near-term positioning, but we looked at how a lower-high under the .7445 level could open the door for bearish continuation.
NZD/USD Rallies Off of Two-Year Lows
The NZD/USD range finally gave way in Q2, and this quickly ushered in a number of bearish theses, most of which we had dismissed as we looked into the pair. But now that time may be nearing for short-side setups if, in fact, the pair is going to move into a full-on down-trend. We’re fast approaching prior range support, and longer-term Fibonacci levels exist at both .6820 and .6870, each of which could be used for bearish continuation plays if we do see resistance show.
USD/CAD – Be Careful of Dueling Employment Reports
At the same time as tomorrow’s NFP, we have Canadian Employment Numbers being released as well. This makes the prospect of positioning in USD/CAD a bit more daunting as we have two drivers to contend with, but a longer-term bullish trend-line appears to line-up with a few other areas of interest around 1.3060. There’s a Fibonacci level there as well as a group of prior swing-highs, and this could offer a confluent zone of support should that zone come into play tomorrow morning.
EUR/JPY Approaching a Batch of Confluent Resistance
At this stage, EUR/JPY remains bearish, but that could quickly change as we’re nearing an interesting batch of potential resistance. We looked at a bearish trend-line, and there’s a Fibonacci level at 129.66. Just a bit-higher, we have the 130.00 psychological level, and this is followed by a batch of prior swing highs around 130.33. This group of resistance keeps the pair bearish for now, but if we break-above, the door could quickly re-open for bullish top-side exposure.
EUR/JPY Daily Chart: Testing Confluent Resistance
Chart prepared by James Stanley
To read more:
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--- 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.