In this webinar, we looked at FX market setups across the US Dollar using price action as we move towards the final days of summer trading. This weekend brings Labor Day in the United States, which means that school has restarted and traders will be more-consistently back at their desks, bringing along well-needed liquidity. This has been a peculiar summer that’s seen t he Dow rise by as much as 9% from the prior June swing lows, and volatility stayed present in the US Dollar and the Euro, particularly over the past couple of months. In this webinar, we looked at themes across the US Dollar in the effort of devising near-term strategy across a variety of markets.
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US Dollar Holds Support at August Lows, Short-Term Resistance Remains
We started off with the US Dollar, which has finally found some support after the bearish move of the past two weeks. This pullback comes with very interesting context, as it marked a complete reversal of the gains that had shown in the first half of the month. This also brings to question the possibility of longer-term bullish continuation in USD, as we’ve now seen four consecutive months fail to mount above the key psychological level of 95.00 (so far, there’s still a day left).
US Dollar Monthly Price Chart
Chart prepared by James Stanley
On a weekly basis, we started to look at the possibility of bearish reversals in this week’s FX setups. This comes after the build of an evening star reversal pattern on the weekly chart, with resistance coming-in at the 23.6% retracement of that same major move of which the 50% marker helped to find support in August.
We avoided a direct short off of this formation this week as prices remained near 95.00 support. But, as that’s begun to shift, so have we, now looking for USD weakness against the British Pound and possibly against the Euro should the single currency finish the month with strength (and a close above 1.1750).
US Dollar Weekly Price Chart: Evening Star at 23.6% Resistance After 50% Support in February
Chart prepared by James Stanley
Given this week’s slide below support, we started to open the door for bearish USD setups but, as noted multiple times, picking the appropriate spot seems to be of the upmost importance. On the four-hour chart below, we look at that case for shorter-term bearish continuation, as brought upon by a hold of resistance off of prior support.
US Dollar Four-Hour Price Chart: Resistance at Prior Trend-Line Support as August Lows Hold
Chart prepared by James Stanley
EUR/USD Drops From Resistance As Risk-Off Items Back in the Headlines
While the ECB has been loose and dovish for a long time, the factors of importance to the pair’s price action of recent have appeared to emanate from global threats. In the month of May, we had the big sell-off on the back of jitters around Italian politics. And then in the first half of August, that fear was driven by potential exposure to Turkey and the ongoing situation there.
Last week saw Turkish markets closed for the entire week, and they came back online this week. Over the past few days, Lira weakness has started to show again, and this has helped EUR/USD to fall from the resistance point that we’ve been following that runs from 1.1709-1.1750.
EUR/USD Four-Hour Price Chart: V-Shaped Bullish Reversal Finds Resistance
Chart prepared by James Stanley
As we discussed on Tuesday, the monthly chart remains important here, as we have a potential hammer formation brewing. We’d need prices to move-higher as we trade into the end of the month to confirm that formation, but if we do get a monthly close beyond resistance of 1.1750, EUR/USD could become attractive for longer-term bullish strength under the presumption that the hammer formation helped to mark a down-trend low. Hammer formations will often show up at the bottom of the move, so if this formation does complete, and if we do have a break of resistance, the door could be opened for a deeper move of Euro strength as we move into September. But for now – resistance remains in play as we move towards the final day of August trade.
EUR/USD Monthly Price Chart: Hammer Potential with a Strong Close to August
Chart prepared by James Stanley
GBP/USD: Time to Flip as Hard Brexit Odds Recede?
It’s been a chaotic month in Cable as well, as the currency put in a hard drop during the first two weeks, even with the Bank of England hiking rates for only the second time in the past decade. Cable continued to slide largely on the basis of a negative fundamental backdrop that brought both Brexit risk and a dovish BoE as down-side drivers for the currency. With very real odds of a Hard-Brexit scenario on the table, and with the Bank of England being even more dovish around that potential, there were few reasons for traders to want to hold long GBP.
Speaking to this – we looked at bullish setups two weeks ago largely on the basis of just how negative matters had become. Oversold readings were flashing on both weekly and daily RSI, and GBP/USD ran into a big Fibonacci level at 1.2671. This was the 23.6% retracement of the ‘Brexit move,’ and this is the same set of retracement levels from which the 78.6% marker called the top in August, just before the aggressive bearish reversal began.
GBP/USD Weekly Price Chart
Chart prepared by James Stanley
Yesterday brought what could possibly be a game-changing factor to this scenario. The EU’s Chief Negotiator, Michael Barnier, announced that the European Union would be open to a post-Brexit partnership with the UK. This signified the fact that Hard Brexit scenario isn’t optimal for Europe, and both sides have a vested interest with meeting around somewhere in the middle.
This also seemingly reduced the odds of a Hard-Brexit or No-Deal Brexit scenario, and near-instantaneously GBP/USD popped-higher after that announcement. We moved to take that prior area of resistance that runs from 1.2918-1.2956 to re-purpose for support.
This can be especially attractive for bearish USD/DXY scenarios, as we looked at above.
GBP/USD Four-Hour Price Chart: Re-Engaging Above the 1.3000 Handle
Chart prepared by James Stanley
USD/JPY Sets Higher-High, Will Bulls Come Back to Offer Support for the Move?
We’ve been following 111.50 this month in USD/JPY, looking for the impasse to break with this being a signal that could re-open the door for bullish themes and strategies. We got the print above 111.50 yesterday, but as of yet we haven’t seen higher-low support. Prices have come off fairly hard since that high was set, and this indicates the risk aversion that’s shown so far today as both Italian and Turkish items have re-emerged in the headlines.
If higher-low support doesn’t hold above the prior week lows, long positons will no longer be favored.
USD/JPY Hourly Price Chart
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
