US Dollar Talking Points:
Q4 has opened in an interesting way as the gyration and slumber that marked the bulk of Q3 has, so far, been nowhere to be found in FX-land. While the US Dollar spent the majority of last quarter in a mean-reverting, back-and-forth manner, the strength that started to show in the final days of September has held into the first week of October in a manner resembling what we saw in the month of May. This is when risk aversion was running high as fears were building around the newly elected government in Italy, and as that situation has come back into the limelight, so has US Dollar strength, EUR/USD weakness and the prospect of a deeper wave of risk aversion.
In this webinar, we looked at setups in the US Dollar in consideration of tomorrow’s Non-Farm Payrolls report.
Talking Points:
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US Dollar Strength Comes Roaring Back to Open Q4
While USD spent much of last quarter in a state of slumber, Q4 has seen a different tone as US Dollar strength has shown quite prominently to open up the period. While it was apparent drives of risk aversion that created the swell of Dollar strength in April-May and then again in early-August, Italian politics are back in the headlines, and the newly-installed government could be in a position to challenge the ECB and the European Commission regarding their budgetary concerns. The situation is still playing out, and this will likely remain for the near-term; but as pressure continues to build, the bid behind the Dollar has remained supported, and this keeps the door open for topside strategies.
As we go into NFP tomorrow, the prospect of a pullback remains as viable for bullish continuation strategies, and prior points of interest around 95.00 up to 95.53 could be usable for such a purpose.
US Dollar Four-Hour Price Chart: Clean Bullish Run Over the Past Week, Fresh Seven-Week Highs to Open Q4
EUR/USD as the Focal Point
While the US Dollar is riding the waves the source of the move appears to draw back to Europe and, more to the point, Italy. EUR/USD is testing around a big level right now, taken from an area that provided months of support as we came in and traded into Q3. The level is 1.1530, and this is around the same price where sellers had relented in late-May. This price came back as support on multiple occasions in June and July, only succumbing to selling pressure in early-August as a fresh round of worries began to show around Turkey.
But even after markets stepped back from the proverbial ledge, 1.1530 had some pull with near-term price action, showing as support in late-August and a couple of different iterations in September. Already in just the fourth trading day of the fresh quarter we’ve seen that level give way, and we caught an element of resistance at prior support there earlier this morning, which we looked at in Market Talk.
At this point, that level could be difficult to work with given that price has already made a move-lower; but in the webinar we looked at a couple of different ways of moving forward on the pair with a similar outlook.
EUR/USD Four-Hour Price Chart: Resistance at Prior Support Around 1.1530
GBP/USD
We’re likely in for a busy Q4 given dynamics around the US Dollar and the still fluid scenario around Brexit. The support zone that we looked at yesterday morning helped to hold the lows, and prices have since moved back to test a resistance trend-line that’s been in-play over the past month. Given the expansion of near term price action, traders would likely want to avoid pushing too aggressively until a more-confirmed directional move presents itself.
GBP/USD Four-Hour Price Chart: Support Zone Holds, Resistance Taken from Descending Trend-Line
USD/JPY Pulls Back to Support
One of the cleaner moves of the past few weeks has been the re-emergence of Yen-weakness. We looked at this in our webinar a few weeks ago, and since then that trend became well-entrenched as USD/JPY rose to a fresh 2018 high, making a fast approach at the 115.00 psychological level. But we’ve seen a pullback this morning as a dash of risk aversion has shown across global markets, and we’re now seeing prices re-test the bullish trend-line that’s been in-play over the past three weeks. We looked at a couple of different ways to plot bullish continuation strategies based on how aggressively one might want to work with the move.
USD/JPY Four-Hour Price Chart: Testing Confluent Support at Prior December, 2017 Resistance
USD/CAD Trend-Line Holds the Lows, Fibonacci Holds the Highs
This one will likely be on the move tomorrow as we also get a Canadian jobs report at the same time of NFP, and we’ve seen a recent bullish move show with some prominence; and that bounce follows what was a fairly clean bearish drive, making the prospect of longer-term directional plays a bit of a challenge.
We looked at how traders could work with the topside of the pair, looking to a batch of prior support/resistance for continued higher-low support.
USD/CAD Hourly Price Chart
USD/CHF with an Aggressive Rip
While USD/CHF was a sweet spot for USD-weakness in August and September, that fact has shifted very quickly as the pair has posted a near-parabolic like move over the past week. As such, that previous bearish stance we had is now being reversed to bullish, with the prospect of topside setups getting a bit more attractive. Prices are currently finding support at a key Fibonacci level, and we looked at how shorter-term charts could be used to work with this level in the effort of risk mitigation.
USD/CHF 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
