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US Dollar Price Action Setups After USD Breaks Down

US Dollar Price Action Setups After USD Breaks Down

2018-09-20 19:07:00
James Stanley, Strategist
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It’s been a busy day across FX, and the potential for volatility remains high as we near the end of Q3. It’s been a difficult quarter for the Dollar, as the currency came into Q3 holding on to gains from the April-May bullish breakout. That bullish push in the Dollar came at odds to the prior down-trend, which had lasted for fourteen months as -15% of the value of the Dollar was shed. With this morning’s bearish ignition, the prospect of a return of Dollar-weakness looks more likely, and this filters through EUR/USD and the topside breakout that’s taken place there so far today. In this webinar, we looked at price action setups across the US Dollar ahead of the Q3 close, and we have an FOMC meeting on the calendar for next week to keep in consideration as well. A hike is fairly-well baked into the cake at this point, but can hawkish verbiage towards a December move break the Dollar’s slumber, even if only temporarily?

Talking Points:

- If you’re looking to improve your trading approach, our Traits of Successful Traders research could help. This is based on research derived from actual results from real traders, and this is available to any trader completely free-of-charge.

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If you’d like to sign up for our webinars, we host an event on Tuesday and Thursday, each of which can be accessed from the below links:

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US Dollar Breaks Down as Descending Triangle Gives Way

On Tuesday, we looked at the US Dollar wobbling around a big support level that made up the lower-portion of a descending wedge pattern that had been building over the past month. We had previously looked at two lower-high areas for resistance potential in anticipation of a deeper support test, and that bearish theme has priced-through this morning as the US Dollar has broken down to fresh two-month lows. The pace of selling was aggressive this morning, and this keeps the US Dollar open for more. In the webinar, we looked at a few areas of interest for lower-high resistance to keep the door open for bearish continuation strategies.

US Dollar Two-Hour Price Chart: Descending Wedge Break Down

us dollar usd two hour price chart

Chart prepared by James Stanley

EUR/USD Breaks Out from Resistance Zone, More Strength in Store?

Going hand-in-hand with that bearish move in the US Dollar, we have a bullish breakout in EUR/USD. This happens despite the seemingly clear monetary divergence between Europe and the US, much as we saw last year. EUR/USD bottomed in mid-August, and the second-half of Q3 has seen a brisk winning streak develop in the single currency. Gains in the pair were largely capped over the past few weeks, with sellers continuing to react to this long-term resistance zone. But as we noted yesterday, each of those resistance responses was appearing to bring a weaker impact, as can be evidenced by the bullish trend-line that had built off of the lows; leading to an ascending triangle formation.

Now with prices posting a bullish breakout, the door is open for higher-low support in strategies of bullish continuation. Such an area exists around the prior swing-high of 1.1725.

EUR/USD Four-Hour Price Chart

eurusd eur/usd four hour price chart

Chart prepared by James Stanley

GBP/USD Throttles to Fresh Highs as Fibonacci Support Holds

We looked into this pair yesterday, as some two-way volatility earlier in the session opened up the possibility for bearish reversals. But – as we wrote, traders would likely want to wait for additional confirmation of downside themes before looking to push lower, and the support level that we were following at 1.3117 continued to hold support until, eventually, buyers were able to push up to fresh highs. We looked at an area of interest for higher low support around the 1.3200 level.

GBP/USD Four-Hour Price Chart: Pullback Potential at 1.3200

gbpusd gbp/usd four hour price chart

Chart prepared by James Stanley

USD/JPY Continues to Clean Up

One of the big takeaways from the past week’s US Dollar weakness is the fact that the Yen continues to be even weaker. We looked at this last Thursday, and this theme has continued to play out this week. This also presents a compelling argument for a continuation of such a scenario as we move into Q4, as the door appears to remain open for the BoJ to remain one of the most loose and passive Central Banks in the world. However, as we’ve been sharing, Yen-weakness may be a more productive theme elsewhere than USD/JPY, as the US Dollar appears to be going through its own gyrations at the moment.

USD/JPY Two-Hour Price Chart: Has a New Trend Emerged?

usdjpy usd/jpy two hour price chart

Chart prepared by James Stanley

EUR/JPY With Higher-Low Support Potential After Fresh Five-Month Highs

The pair that we were looking to for Yen-weakness this week was EUR/JPY, as we looked for a support test in the 130-130.35 area for a higher-low. That filled in fairly quickly, and since then bulls have very much been in-charge, pushing beyond numerous points of resistance. The fear at this point would be overbought conditions, and we looked at an area of interest for higher-low support for bullish plays on the pair.

EUR/JPY Four-Hour Price Chart: Five-Month Highs as Yen-Weakness Becomes Unleashed

eurjpy eur/jpy four hour price chart

Chart prepared by James Stanley

GBP/JPY Bullish Potential

Similar to the above, GBP/JPY could have interest on the long side as we see a continuation of GBP strength combined with that recent re-emergence of Yen-weakness. The pair put in a fairly strong move already so far this week, but a pullback to higher-low support keeps the door open for bullish continuation strategies.

GBP/JPY Four-Hour Price Chart: Going Parabolic, Be Careful if Chasing

gbpjpy gbp/jpy

Chart prepared by James Stanley

USD/CHF Beware the Building Wedge

USD/CHF has been one of our favored pairs for USD-weakness, and we looked at another short-side setup in the pair this week, and the zone of lower-high resistance that we’ve been following came into play, just ahead of another wave of selling and fresh lows. Disconcerting, however, is how bears appear to be slowing down upon re-tests of lows, and this could be emblematic of a stretched market preparing to snap back.

USD/CHF Four-Hour Price Chart: Beware the Build of a Falling Wedge, Seller Enthusiasm at Highs Not Shared by Seller Motivation Upon Tests of Fresh Lows

usdchf usd/chf 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 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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