US Dollar Price Action Setups in EUR/USD, USD/CAD and USD/CHF
The word of the day is ‘some.’ This is what helped to drive a fairly visible rally in the US Dollar this morning, when the word was omitted from a key phrase in a speech given by recently installed Fed Vice Chair, Richard Clarida. In his first speech as Fed member last month, Mr. Clarida commented that ‘some further gradual tightening’ may be needed to find the neutral rate at the Fed. This would be the level of interest rates that are neither stimulative nor restrictive; and there’s a large amount of discord as to what this rate actually is. But, in this morning’s speech, Mr. Clarida omitted the word ‘some’ and said only ‘further gradual tightening,’ which was inferred by market participants to be a more hawkish stance towards rate policy.
This helped to spark a bullish theme in the US Dollar around 8:30 AM, when Mr. Clarida’s speech began, and the Dollar has been running higher for most of the session. This complicates long USD strategies that have been followed in EUR/USD and USD/CAD; while also opening the door for fade-potential in setups optimal for USD-weakness, such as USD/CHF or NZD/USD. In this webinar, I looked at price action setups across the USD-spectrum.
US Dollar Talking Points:
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US Dollar Flies Higher After Clarida Comments
The US Dollar opened the week with resistance at a familiar level, as the 97.00 area on the DXY chart is what came into play around the earlier-month gap-higher, which set up a bull trap in the currency. That bull trap quickly fell-in as prices slalomed down to the 96.00 handle, where a big level of support came into play two weeks ago. Since then, it’s been a one-way show of USD strength, with prices closing last week around 97.00, and holding that into this week’s open.
This morning saw another bump-higher in the US Dollar, and this came on the back of some interesting comments from recently-installed FOMC Vice Chair, Richard Clarida. In his first speech as Fed member just over a month ago, Mr. Clarida said that ‘some further gradual tightening’ may be needed. In this morning’s speech, he said only ‘further gradual tightening’ may be needed, removing the word ‘some.’ While I realize this may seem a minor sticking point, it has mattered so far today as a rather visible ramp of US Dollar strength developed on the back of those comments.
This poses a difficult scenario for those looking to chase the move-higher, as this may be a case of hyperbolic inference over a very minor detail. As such, bullish-USD setups may need to fill-in a bit before they become actionable.
US Dollar Four-Hour Price Chart
EUR/USD Tests 1.1300 as Bears Get Shy
Going along with the stretched US Dollar is a move that feels equally stretched in the opposing direction in EUR/USD. The 1.1300 level was a big deal, as this price reversed a stark bearish advance in mid-August, and did the same to a lesser degree in late-October. This level was traded through in mid-November, but bears shied away from a re-test of a big Fibonacci level at 1.1212, pushing prices back in the resistance zone from 1.1448-1.1500.
Since that resistance re-test, bears have been back on the offer and prices have re-tested the 1.1300 level. In the webinar, I looked at playing pullbacks for setups designed around bearish continuation, as this remains as one of the more-attractive long-USD candidates.
EUR/USD Four-Hour Price Chart
GBP/USD Sets Up a Potential Bear Trap
GBP/USD is working with some long-term support levels at the moment, as I had discussed in yesterday’s technical article on the pair entitled, GBP/USD: Cable Builds Support as Retail Traders Load-In.
Headlines remain messy around Brexit, and this will likely remain as the case as we approach the vote at the House of Commons in two weeks. But, there has been an element of respect at these long-term support levels, and there may eventually be a bullish case to be made in the pair if buyers can pose some element of strength upon a test of resistance. In the webinar, I looked at the backdrop that would be needed to start making that happen.
GBP/USD Weekly Price Chart
USD/CAD Stretches to Fresh Four-Month Highs
I started looking at USD-strength strategies in the pair two weeks ago as a confluent area of support had come into play. That support was shown from a Fibonacci level, a trend-line projection along with a batch of prior resistance. Prices soon shot up to fresh four-month highs; and then pulled back coming into this week.
This week’s early price action saw another trend-line test with which bulls have responded, and this keeps the pair as one of the more attractive and potentially actionable long-USD themes at the moment. In the webinar, I looked at a zone of support potential that keeps the door open for bullish plays.
USD/CAD Two-Hour Price Chart
AUD/USD Tests Long-Term Fibonacci Support Zone
I started looking at bullish ideas in AUD/USD last month as sellers began to slow at the lows, leading to a falling wedge formation. The month of November started in a strong way for the pair as prices quickly broke-out to start the month, and that strength has largely remained. In the process, prices crossed a key level on the chart that runs from .7185-.7205, as each is a long-term Fibonacci level that’s had a prior role in the pair’s price action in May and December of 2016.
The past week has seen prices pull back, and buyers are currently holding the pair at the zone. This keeps the door open for topside plays for strategies of USD-weakness.
AUD/USD Eight-Hour Price Chart
NZD/USD Falling Wedge After Fresh Four-Month Highs
I had discussed this setup I this morning’s market talk, and NZD/USD has been one of the more active short-USD setups this month, breaking out to fresh four-month highs despite the US Dollar setting its own fresh yearly highs this month. Over the past week, a pullback has developed in Kiwi and this has put in a falling wedge formation, which will often be approached for bullish reversal plays. This puts emphasis on the .6820 level on the chart.
NZD/USD Four-Hour Price Chart
USD/CHF Tests Resistance at Prior Parity Support
USD/CHF found support off of the 61.8% Fibonacci retracement of the 2016-2018 major move two weeks ago. This helped to quell the sell-off, and prices have since retraced in a very orderly manner, finding a bit of resistance at the key level of parity. This would keep the door open for short-side approaches in the pair.
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 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.
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX