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US Dollar Price Action Setups as USD Bulls Stampede Through Resistance

Volatility in the Forex market appears to be catching up to the moves from the equity space over the past few weeks. While FX pairs remained relatively quiet so far in Q4 while stocks were putting in some large moves, a breakout in the US Dollar through a big level has helped to bring on fresh lows in the key pairs of EUR/USD and GBP/USD. So even though NZD/USD and AUD/USD hold support, EUR/USD and GBP/USD have put in continuation of bearish structure and this has mirrored that rather aggressive topside breakout in the US Dollar.

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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US Dollar Bulls Take Control

US Dollar bulls have put in quite the performance so far this week, and this follows the Tuesday look into resistance at 96.04, which had previously held four separate resistance tests already in Q4. But, as I had said, the fact that each of those resistance inflections were getting a weaker response from sellers (leading to an ascending triangle), bullish breakouts may soon be near. That happened a bit more quickly than even I was expecting, and prices made a bee-line up to the next logical area of resistance at 96.47. That held the highs into this morning’s ECB rate decision; but after the press conference, EUR/USD put in another leg of weakness and the Dollar surged up to another fresh high.

At this point, DXY is hard-charging towards the 2018 high around 97.00. A hold of resistance at that level can open the door for short-term bearish reversals. Those themes could be sought out in pairs that have been a bit more immune to this recent run of strength in the Greenback, such as NZD/USD or AUD/USD. For bullish continuation strategies in the Dollar, traders can look for either a pullback to support at prior resistance around 96.04 or, alternatively, topside breakout logic.

US Dollar Four-Hour Price Chart: Sharp Breakout Runs Towards 2018 High

us dollar usd four hour price chart

Chart prepared by James Stanley

EUR/USD Folds Over After ECB

This morning’s ECB rate decision and press conference were largely uneventful, and EUR/USD remained supported with a slight bullish bias through most of the outlay. It was near the end of Mr. Draghi’s press conference that this began to shift, however, and this led to a rather pronounced move of Euro weakness that looks to be ECB-driven, at least from longer-term charts. Examination of shorter-term variants would suggest something else is afoot…

Draghi didn’t sound especially dovish. He did remark about slowing growth, but he also qualified that as being possibly transitory, one-off conditions, such as a drawdown in German autos on the back of stiffer emission standards. He did say that the bank is on track to end stimulus this year, and the ECB is still looking at keeping rates at current levels ‘at least through the summer of 2019,’ so there wasn’t much for change there. The big item of interest at the moment appears to be coming from Italy, where Mr. Draghi sounded fairly upbeat. He remarked that spillover from Italy has, thus far, been limited; while also saying that he’s confident that an agreement will be found between Brussels and Rome.

On the EUR/USD chart, the big question is whether that prior area of support from earlier in October can elicit some element of lower-high resistance. This runs from around 1.1448-1.1500.

EUR/USD Four-Hour Price Chart

eurusd eur/usd four hour price chart

Chart prepared by James Stanley

GBP/USD Fresh Lows After Wedge Break

I had looked into this one earlier this week as GBP/USD had just put in a bearish break below a symmetrical wedge pattern that had been brewing for the past couple of months. After the support side of the formation was broken, prices posed a bounce up to resistance at prior support; and it’s largely been a one-way show since as traders have pushed the pair down to fresh two-month lows.

Brexit continues to be a concern as there’s been no additional clarity on the matter. Theresa May did survive the 1922 Committee yesterday, but it appears as though the PM is still not yet out of the woods.

The big question around the pair is whether that prior area of support, taken from the 61.8% Fibonacci retracement of the 2017-2018 bullish trend, shows resistance at prior support.

GBP/USD Four-Hour Price Chart

gbpusd gbp/usd four hour price chart

Chart prepared by James Stanley

AUD/USD Building Higher-Lows Above the .7000 Big Figure

Given the outsized response in the US Dollar, the prospect of short-term reversals gets a bit more attractive, particularly if that 97.00 level can come into play. The big question after that though, is where might those themes be most attractive?

Both EUR/USD and GBP/USD have surged down to fresh lows. But – AUD/USD continues to hold earlier October support above the .7000 psychological level. This could, at the least, offer some element of risk concentration for reversal plays, and if USD-weakness does show up, AUD/USD prices could firm.

AUD/USD Four-Hour Price Chart: Even with USD Breakout, AUD/USD Builds Support Past Two Weeks

audusd aud/usd four hour price chart

Chart prepared by James Stanley

NZD/USD

I had looked at NZD/USD for this purpose earlier in the week, and the pair has largely held support above the big figure of .6500. But, given dynamics of support around multi-year lows, AUD/USD may now be a bit more attractive for that purpose.

NZD/USD Four-Hour Price Chart: Holding Above .6500 Even with Rampant USD Strength

nzdusd nzd/usd four hour price chart

Chart prepared by James Stanley

EUR/JPY Possible Capitulation Low

EUR/JPY has put in a vigorous bounce off of a psychological level after a strong trend pushed below a big area of support at 128.52. Prices moved all the way down to 127.50, after which a rather visible bounce began to show, and this is reminiscent of the same type of event in mid-August, when prices perched down to 125.00 before catching a long-wick that led to a bounce that lasted for much of the next two months.

EUR/JPY Four-Hour Price Chart: 127.50 Psychological Support

eurjpy eur/jpy four hour price chart

Chart prepared by James Stanley

GBP/JPY Digs Into Support, Lower-High Resistance Potential

I had looked at this pair earlier this week for themes of risk aversion, looking for short-side breakouts to fresh near-term lows. That theme has run into this morning, but there’s been a build of support just above 144.00 that shouldn’t be discounted, as there is a big Fibonacci level lurking just below. At this stage, that 145.00 level could remain attractive for lower-high resistance potential.

GBP/JPY Daily Price Chart

gbpjpy gbp/jpy daily 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 Q4 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 an abundance 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