FX Setups in USD, EUR/USD, NZD/USD and USD/CHF
It’s been a busy start to the week, and a number of items remain that can continue to drive volatility. In the US, equities continue to try to find their footing after last week’s bullish run has come into question. In Europe, Italy’s revised budget is due to Brussels by midnight CET, and the question remains as to whether the Italian government will cave to Brussels’ demands. Most signs are pointing towards ‘no,’ but what exactly that will entail remains to be seen. In the UK, a bit of hope populated the headlines earlier today as optimism showed on the Brexit front. But – once the draft of that proposal began to leak GBP/USD came right back down. Is this something that can pass Theresa May’s cabinet? Or Parliament? It remains to be seen, and traders will likely want to remain cautious until more clarity is had. In Asia, the Bank of Japan’s portfolio is now larger than the size of the country’s GDP. Will they be able to stay pedal-to-the-floor on the stimulus front?
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US Dollar Pulls Back From Fresh Highs, Beware Bull Trap
The US Dollar is finally pulling back after last week’s trend-line support test, capping off a very bullish past five days of price action. There remains some unfilled gap from this week’s open, taking place around that 97.00 level on DXY, which had helped to set the August swing-high. Markets have a tendency to fill opening gaps, particularly in 24-hour markets like FX that only close during weekends. At this point, that gap hasn’t filled, and a pullback to support around that prior area of 97.00 looks almost too clean. Traders should be aware of a potential trap at that level, with deeper support potential down around the 96.47 level on DXY, which is the 23.6% Fibonacci retracement of the 2011-2017 major move.
US Dollar Two-Hour Price Chart
EUR/USD Bounces After 1.1215 Test
This week’s US Dollar strength was aided in part by a breakdown in EUR/USD down to fresh yearly lows. The price of 1.1300 had twice rebuked bearish advances, in mid-August and again in late-October. Shortly after this week’s open, prices broke below and continued to run until buyers stepped in near a key Fibonacci level at 1.1212. This is the 61.8% retracement of the 2000-2008 major move in EUR/USD, and this level helped to provide intra-month resistance in the pair during the two year range (March 2015 – May 2017). To date, prices haven’t tested this level for support since the topside breakout last year. Is this the area where bulls stage a reversal? Maybe, but there’s not nearly enough evidence to support bullish strategies yet.
Later today brings the due date for Italy’s budget to Brussels (Midnight CET), and neither side looks ready to give. This brings risk potential to the single currency, and keeps the door open for bearish strategies.
EUR/USD Four-Hour Price Chart
GBP/USD Finds Gap Resistance, Surges on Brexit Hopes
Some positivity showed up this morning around Brexit dynamics as word began to spread the Brexit negotiators were working on a deal to send to Theresa May’s cabinet. This would keep the door open for the later-month summit between the EU and the UK. But, this would still need to be approved by her cabinet before being approved by Parliament, and given the circuitous twists and turns in the Brexit saga, traders appear rightfully cautious of getting too optimistic here. That run of optimism did help GBP/USD trade above the 1.3000 level, if only temporarily; but the actual test of that draft appears to have quelled the topside run.
The longer-term setup here remains of concern as prices have been caught in a bout of mean reversion for almost four months now. For long-term strategies, it appears wise to step back and wait for the chart to get cleaned up. On a shorter-term basis, potential is still there as there’s considerable volatility inside of this space; but adaptation is a necessity, as headline-drive volatility will often bring on lower winning percentages, and this would need to be offset by even stronger risk-reward ratios.
GBP/USD Daily Price Chart
AUD/USD Pulls Back to Support, But Sellers Push a Fresh Low, Look Out Below
AUD/USD had spent a large portion of this month as one of the more attractive short-side USD candidates, and this comes after a month of October that saw the pair dig-in to support above the .7000 handle. But – the confluent zone of Fibonacci support that helped to find last week’s swing low has come back into the equation, and sellers pushed prices below that area, even if only temporarily. Since then, prices have corrected back above the .7185-.7205 support zone, and the door can remain open for bullish strategies. But, on a short-term basis, this pair may not be as attractive as NZD/USD for topside setups.
AUD/USD Daily Price Chart
NZD/USD Holds Higher-Low Support After Last Week’s Breakout
In a similar theme as AUD/USD, NZD/USD started building in support in October while the US Dollar was really strong. This led into a sharp topside breakout in early-November, and that run continued into last week’s RBNZ/FOMC rate decisions, which helped the pair to pose a quick wick up to the .6819 Fibonacci level. Since then, prices have settled back towards the support zone that I’ve been following at .6725, as taken from the late-August swing-highs that come-in right around a key Fibonacci level. The door remains open for bullish setups here, and this is now a bit more attractive than what’s showing in AUD/USD.
NZD/USD Eight-Hour Price Chart
USD/CHF At Two-Year Highs: How Much More Can Buyers Push?
In this week’s FX Setups, I tried to avoid AUD/USD and NZD/USD as I had been setting each of those pairs up for bullish setups over the prior few weeks. I had instead looked at playing reversals in two other USD-pairs that were trading at-or-near multi-year highs. USD/CHF is trading around its highest level since March of 2015. And while prices have moved-higher in the early portion of this week, that enthusiasm has been dampened a bit, and this can keep the door open for reversal setups in the pair, particularly for short-side USD strategies.
USD/CHF Weekly 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
