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US Dollar Price Action Setups After Day One of Powell's Testimony

US Dollar Price Action Setups After Day One of Powell's Testimony

2018-07-17 18:40:00
James Stanley, Currency Strategist
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In this webinar, we looked at price action setups across the US Dollar after the first day of FOMC Chair Jerome Powell’s Humphrey Hawkins testimony. This helped the US Dollar to re-visit the 95.00 level on DXY that’s had a tendency to produce support over the past month, and this further brings to question the potential for bullish continuation as we move closer to the June double top at 95.53 on the Dollar index. Mr. Powell’s second day of testimony is on the economic calendar for tomorrow, and this is preceded by a key release of UK inflation for the month of June, and this will be the final inflation print that we get before the August ‘Super Thursday’ rate decision at the Bank of England.

Talking Points:

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US Dollar Bounces From Fibonacci Support, Continues to Run Through Powell Comments

Coming into this morning, the Dollar was continuing to pullback after last Friday’s reversal from a lower-high. Prices ran down as far as 94.20, at which point the 38.2% retracement of the 2017-2018 down-trend came into play shortly after this morning’s European open. Buyers came in to offer support as we neared the start of Chair Powell’s testimony, and after trickling higher as we approached the testimony, bulls took over to drive-higher for the next couple of hours. At this point, DXY is testing the 95.00 level which has become somewhat of a hindrance to the Dollar’s bullish theme over the past month, and this makes the prospect of top-side strategies a bit more daunting until we see some element of resolution.

US Dollar Hourly Price Chart

US Dollar USD Hourly Price Chart

Chart prepared by James Stanley

EUR/USD Stifled by Key Resistance Zone, Builds into Potential Bear Pennant

Despite the potential for trend, EUR/USD has spent most of the past month digesting the prior quarter’s sell-off. This has helped EUR/USD price action to narrow deeper into a symmetrical wedge, with the resistance zone that we’ve been following that runs from 1.1685-1.1736 helping to moderate prices. Just this morning the topside of that zone came into play just ahead of that rush of USD-strength, and prices are tilting-lower. Traders would likely want to wait for prices to break out of this pattern of digestion before assigning directional strategies in the pair. A downside break of last week’s lows opens the door for a re-test of the 1.1550 area, and if we do see the double bottom at 1.1509 become tested, the door could soon open for bearish breakout strategies.

EUR/USD Four-Hour Price Chart

EUR/USD eurusd four hour price chart

Chart prepared by James Stanley

GBP/USD Dismayed – UK CPI on Deck

We’ve been following the messy price action in Cable over the past few weeks as Brexit headlines have appeared to take a greater effect on near-term price action. As we get closer to the showdown between the EU and the UK, set to take place in October, bulls have had a more difficult time stringing together any patterns of strength. More interesting, however, is the continued build of support around 1.3117. Given the bearish momentum that we have, that level may not hold for long – but the big question is what happens after? Just below that support is another area of interest in the 1.3000 psychological level, and if we do see some element of buyer response here, the door could soon open to bullish reversal possibilities.

Of note – tomorrow brings the release of June inflation numbers out of the UK, and this will be the final piece of CPI data that the BoE gets to see ahead of the August Super Thursday rate decision. Odds are currently 80%+ for a hike at that meeting.

GBP/USD Four-Hour Price Chart

gbp/usd gbpusd four-hour price chart

Chart prepared by James Stanley

USD/JPY Bullish Continuation

We had looked at a bullish breakout in USD/JPY last week at the 111.50 level, and prices put in quite the topside extension since then. The prospect of Yen-weakness was one of the Q3 themes of interest that we had looked at, largely on the basis of weak Japanese inflation helping the Bank of Japan to remain one of the more loose and passive Central Banks. As long as risk aversion remains at bay, that premise can remain solid, and we looked at how near-term price action can be used to investigate bullish exposure in USD/JPY up to the 114.50 resistance area.

USD/JPY Four-Hour Price Chart

USD/JPY usdjpy four hour price chart

Chart prepared by James Stanley

USD/CAD Bounce From Confluent Support Opens the Door for More

Also in the realms of bullish continuation in USD we have USD/CAD, albeit with a far different backdrop from what we have out of Japan. While Japan is likely to sit on low rates for the foreseeable future, we just saw yet another rate hike out of the Bank of Canada. But – the BoC may be done for now, and like Japan, we may be able to watch rate divergence between the two representative currencies as the Fed moves towards another two hikes in 2018. In USD/CAD, we had looked an area of confluent support in the pair ahead of last week at 1.3065, and that level came into play around the Bank of Canada rate decision last Wednesday. After quick support tests, prices shot-higher, and the door remains open for more. At this point, the more attractive scenario is a pullback to higher-low support that can be used for bullish re-entry. We looked at a short-term trend-line that can help with such a scenario.

USD/CAD Four-Hour Price Chart

usdcad usd/cad four hour price chart

Chart prepared by James Stanley

US Stocks to Fresh Highs After Powell

We had looked at the Dow Jones Industrial Average earlier this morning, and prices have run higher after Mr. Powell’s first day of testimony. This does keep US equities in a bullish position, and traders would likely want to move forward with a bullish bias. In the Dow – prices are trading above the psychological level of 25,000, and this can be similar to the DXY at 95.00, which has been somewhat of a hindrance to recent bullish advances. We looked at a couple of potential pullback levels that can be used in the search for higher-low support in the pair.

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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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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