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Today’s economic calendar brought a series of high-impact events, with three major rate decisions on the docket out of Turkey, the UK and the EU. Perhaps surprisingly the biggest takeaway from this morning’s action wasn’t coming from any of these rate decisions, but rather the move in the US Dollar that began to show around the release of August CPI numbers. Inflation came-out below expectations to mark the first reduction in the indicator since December of last year. And while this didn’t necessarily impact odds for a September or December rate hike, it did bring on a very visible leg of weakness to the US Dollar. DXY fell down and found support at the August swing low, taking place around 94.43. That support is holding for now, but this does make the prospect of a return of bigger-picture USD weakness look a bit more likely, particularly given the currency’s failure to continue the bullish move that showed in April and May of this year. In this webinar, we used price action to look at USD markets in the wake of this morning’s events. We recap a few of those setups below.

Talking Points:

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Dollar Drops to Monthly Low After Disappointing Inflation

The US Dollar has recently found itself in a compromising position as bulls haven’t been able to show much after the April-May breakout. As we see prices beginning to test below support, this makes the prospect of a return of weakness, much as we saw last year, look more likely. This comes even as the Fed is one of the few major Central Banks actively looking to hike rates; but that may not matter much, as it didn’t appear to have much pull last year. With the US and the Federal Reserve fast nearing the neutral rate, the big question is how much more might the Fed might be able to move. The ECB, on the other hand, just made the first step away from their gargantuan stimulus outlay earlier today, and should that trend continue, the bank may have some rate hikes ahead. It’s that very deviation that could push USD below support while bringing back characteristics of the 2017 down-trend in the currency.

At this point, that longer-term USD bearish theme isn’t yet ready, as we’re holding the line at the August lows. But, signs aren’t looking positive, and on a short-term basis, that backdrop for continued weakness could exist with prices finding resistance at a lower-high, as we looked at earlier today.

US Dollar Two-Hour Price Chart: August Lows Hold Support, Lower-High Resistance Potential

us dollar usd two hour price chart

Chart prepared by James Stanley

On a longer-term basis, that bearish case is building, as we’ve just begun to test below the bullish trend-line that’s taken from the June-August swing-lows.

US Dollar Daily Price Chart: Bullish Theme Continues to Wane

us dollar daily price chart

Chart prepared by James Stanley

EUR/USD Jumps, But Was This Stimulus-Taper or US CPI-related?

Timing is important here: The ECB announced their rate decision along with their bond purchase amounts at 7:45 AM ET, and this is when we saw the first confirmation that the ECB is, in fact, tapering bond purchases beginning in October. The Euro did very little after that. But – at 8:30, Mario Draghi began the accompanying press conference right as US CPI was being released, and this is when EUR/USD began to show a bullish breakout. So – at this point, it would be impossible to say that this wasn’t at all Draghi-related, but reading the tea leaves, it does appear as though this move was more linked to US CPI than it was the ECB. Nonetheless, the price action here is non-negotiable, as we saw a brisk topside move begin at 8:30 AM that’s still showing some topside potential.

EUR/USD Hourly Price Chart: Breakout to Fresh Two-Week Highs

eurusd eur/usd hourly price chart

Chart prepared by James Stanley

On a bigger-picture basis, a break-above the 1.1709-1.1750 area will make the prospect of a longer-term bullish shift look much more attractive. This area has held the highs in the pair since July, and this area helped to hold resistance in late-August after prices reversed mid-month. This appears to be a key area for EUR/USD to take out for further topside continuation.

EUR/USD Eight-Hour Price Chart: Resistance Zone Awaits 1.1709-1.1750

eurusd eur/usd eight hour price chart

Chart prepared by James Stanley

GBP/USD: From Fib to Shining Fib

GBP/USD has just run into the 38.2% retracement of the Brexit move, and this comes after the 78.6% marker caught the April top while the 23.6% level helped to form the August low. We were following this level to open the door for bullish continuation setups in the pair, as we discussed in yesterday’s technical article on GBP/USD and further reiterated in today’s webinar.

GBP/USD Eight-Hour Price Chart

gbpusd gbp/usd eight 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 DailyFX.com

Contact and follow James on Twitter: @JStanleyFX