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US Dollar Price Action Setups Ahead of ECB, BoE

US Dollar Price Action Setups Ahead of ECB, BoE

James Stanley,
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In this webinar, we looked at price action setups across a series of major FX pairs ahead of a big batch of headline risk on the calendar for this Thursday. The Bank of England hosts a rate decision early on the day, and this is followed by the European Central Bank for a rate decision in which many are looking for the start of stimulus taper. This is followed by the accompanying press conference at 8:30 AM ET, which takes place at the same time as the release of August CPI numbers out of the United States. Naturally, this can keep EUR/USD on the move as both economies represented in the pair will be in the midst of a high-impact event, and in this webinar we look at a few different scenarios to work with.

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US Dollar: Digestion of Longer-Term Digestion

The US Dollar is building into a symmetrical wedge pattern as we’ve seen both lower highs and higher lows as DXY trades between 95.00 and 95.53. Each of those prices worked as some form of resistance this summer, with 95.00 being the May swing high and 95.53 functioning as the same for the month of June.

US Dollar Four-Hour Price Chart

us dollar usd four hour price chart

Chart prepared by James Stanley

This short-term digestion is taking place in terms of a similar case of longer-term digestion. The US Dollar put in a very bullish two-month run in April and May; but since hasn’t been able to make much ground. The same 95.00 level that helped to mark the May swing high was tested again earlier this morning, and this comes after an aggressive reversal began to show in mid-August.

This brings that bullish trend in the US Dollar into question as DXY continues to grind around near-term support.

US Dollar Daily Price Chart: Bullish Trend Looking Less Enthusiastic as Support Faces Continued Pressure

us dollar daily price chart usd

Chart prepared by James Stanley

EUR/USD Primed for ECB Thursday

This Thursday brings a European Central Bank rate decision in which many market participants are looking for the start of QE taper. The ECB had previously mentioned at their June rate decision of their intention to exit QE by the end of this year, with a heavy inference that tapering would begin in September. But – the bank also tried to divorce the prospect of ‘less loose’ policy as indicated by QE taper from ‘tighter’ policy as signified by rate hikes. The ECB said that they were anticipating keeping rates at current levels ‘at least through the summer of 2019,’ and this quickly sent EUR/USD down to a key support level at 1.1530.

That support held for much of the next two months, only succumbing to selling pressure as fears around European banks’ exposure to Turkey began to take-over. But as recovery in EUR/USD took hold, that 1.1530 level came right back as support. At this point, we’ve seen three support tests off of this level after the mid-August recovery, and this can be coupled with a bearish trend-line to create a descending triangle formation, which will often be approached with a bearish bias.

EUR/USD Eight-Hour Price Chart: Support Reverts Back to 1.1530 After mid-August EURUSD Recovery

eurusd eur/usd eight hour price chart

Chart prepared by James Stanley

The counter-side of the argument in EUR/USD is the fact that sellers have had ample ammunition to push the currency lower throughout this summer, but that back-breaking sell-off that was so prominent in the month of May never showed much promise below 1.1500. We had a week and a half blip of weakness as EUR/USD tested below the level in early-August, but this was very much being driven by risk aversion around Turkey.

This would be somewhat similar to last year, when EUR/USD trended higher from April-on even as the Fed hiked and the ECB remained dovish.

For bullish strategies in EUR/USD, watch the resistance zone that runs from 1.1709 up to 1.1750. We’ve been following this area as a cut-off point for bearish strategies for a few weeks now, and this is the same zone that helped to hold the highs for the second half of July. A break-above gives us fresh two month highs as buyers would have had to drive through a considerable area of resistance. So, in EUR/USD, it’s bearish until it’s not.

EUR/USD Weekly Price Chart: 38.2 Retracement at 1.1709 to Mark Start of Resistance Zone

eurusd eur/usd weekly price chart

Chart prepared by James Stanley

GBP/USD: Building Bullish Case But Be Careful of Brexit Whip

Prices in GBP/USD have been a bit more chaotic than usual as being driven by the various Brexit headlines that have been flowing for the past ten trading days.

It was a fairly sad picture around GBP/USD in mid-August, as pessimism had enveloped the British Pound so much so that even the BoE’s rate hike in the early portion of the month couldn’t arrest the declines. GBP/USD was in a hard sell for the first half of August, eventually hitting a key support level at 1.2671. With deep oversold conditions showing on both the Daily and Weekly charts, combined with that support level, we started to look at counter-trend plays; largely on the basis of how pessimistic everything around GBP had become.

GBP/USD Weekly Price Chart: August Fibonacci Support After April Fibonacci Resistance

gbpusd gbp/usd weekly price chart

Chart prepared by James Stanley

Since that support has come into play, however, we’ve begun to see the backdrop shift. Two weeks ago, the EU’s Chief Negotiator announced that the EU would be open to a post-Brexit partnership with the UK. This helped to ally some of the fears around Hard-Brexit or a No-Deal Brexit that had started to get priced-in, and in short order GBP/USD had traded above the 1.3000 handle.

We warned against chasing the pair at the time; and last week produced some considerable shake in near-term price action as headlines swung the pair in both directions. But – given softening of this very key variable in GBP/USD prices, this flip did have the potential to continue driving the pair higher as GBP further recovered.

In yesterday’s article, we looked at how at least some of this move, at this point, appears to be emanating from short-cover, which would be reasonable considering how entrenched the prior down-trend had become. But – many bullish rallies begin as short-cover or a short-squeeze as the prior bearish trend comes in question until, eventually, it reverses. The big question is if we’re at that point now on the British Pound.

If we do see weakness come back into the US Dollar similar to what we saw last year, that bullish case for GBP/USD could grow considerably more attractive.

GBP/USD Four-Hour Price Chart

gbpusd gbp/usd four hour 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

Contact and follow James on Twitter: @JStanleyFX

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