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US Dollar Price Action Setups Ahead of FOMC: USDJPY, USDCAD, USDCHF

US Dollar Price Action Setups Ahead of FOMC: USDJPY, USDCAD, USDCHF

James Stanley, Senior Strategist

US Dollar Price Action Setups Ahead of FOMC: USD/JPY USD/CAD USD/CHF

Tomorrow brings the final Fed rate decision of 2018, and the bank is widely-expected to hike rates for the fourth time this year. Of recent, there have been grumblings that the FOMC may back away from this widely-anticipated move, driven in-part by the recent influx of volatility that’s shown across US equities. To be sure, Q4 has seen a stark change-of-pace develop in US stocks, as the prior bull trends that pushed fresh all-time-highs in the opening days of October soon turned on a dime; and much of the time since has been spent with some form of bearish backdrop.

This may not be enough for the Fed to alter their plans, however, as delaying or avoiding that rate hike tomorrow might send a much louder signal of fear across global markets. More likely, the Fed will attempt to assuage fear with forecasts for next year, moving closer to a ‘wait and see’ approach rather than the 2-3 hikes that were previously forecasted for 2019.

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US Dollar Continues Pullback After Test of Fresh Yearly Highs

Last Friday saw the US Dollar set a fresh yearly high, barely squeaking above the prior high watermark set in November of this year. Since then, prices have pulled back and haven’t really stopped, as DXY broke below last week’s higher-low support, and it looks as though a re-test around 96.47 may soon be in the cards. Tomorrow’s FOMC rate decision will likely help bring the next directional move to USD but, until then, there are setups of interest on either side which are looked at in the below markets.

US Dollar Four-Hour Price Chart

us dollar four hour price chart usd

Chart prepared by James Stanley

EUR/USD Churn and Burn, Look for the Big Break

Going along with that messy price action in the US Dollar is a similar backdrop in EUR/USD. The pair put in a downside test of the symmetrical triangle last week, but even that fell-flat as prices simply reverted back into the formation. And this morning saw a topside test of 1.1400; but prices soon pulled back to leave EUR/USD traders with a lack of a near-term directional bias.

The area of interest to me on EUR/USD is a break of the longer-term range levels. On support, this is from 1.1187-1.1212 and on resistance, it’s that same zone I’ve been following for almost the entirety of Q4. That runs from 1.1448-1.1500, and this area had functioned as support around the Q4 open, soon becoming resistance and holding the highs through the month of November.

There can be a building case for bullish EUR/USD strategies, particularly if a deeper breakdown shows up in the USD. For that scenario, I’d want the zone from 1.1448-1.1500 broken-through before the door could re-open to that theme.

EUR/USD Daily Price Chart

eurusd eur/usd daily price chart

Chart prepared by James Stanley

GBP/USD Reconvenes Recovery Rally

Last week was a wild ride in GBP around Brexit dynamics, and those headlines have slowed a bit this week. The next couple of days, however, bring some fairly interesting items out of the UK economy. Tomorrow morning brings November inflation numbers and Thursday brings the Bank of England. The big question is how long this topside move in GBP/USD might run. I had started to look for resistance around 1.2750 last week, and that scenario remains a possibility. But, there could be some additional short-cover out there, and I’ve set out 1.2850 as an ‘invalidation level’ on the bearish theme. If that level is broken-through, the door closes for short-side strategies on the pair.

GBP/USD Two-Hour Price Chart

gbpusd gbp/usd two hour price chart

Chart prepared by James Stanley

USD/JPY Drops to Support After Hold of Lower-High Resistance

On the short-side of the US Dollar, I started to look at USD/JPY coming into this week with focus on the build of lower-highs over the past few months. This opened the door for a fairly-attractive risk-reward ratio, looking for targets at the 112.30 support area that had already been in-play twice through early-December.

Prices have broken down for another re-test of this level, and the door can remain open for further downside in the pair. The 113.00 level could be interesting for lower-high resistance and bearish continuation themes.

USD/JPY Eight-Hour Price Chart

usdjpy usd/jpy eight hour price chart

Chart prepared by James Stanley

USD/CHF Re-Tests Key Fibonacci Level After Build of Lower-High Resistance

Also on the short side of the US Dollar for this week, I looked into USD/CHF. I had started to look at the short-side of the pair in mid-November as prices were nearing the two-year high; in essence trying to catch a top in the pair. That November run brought a quick test of the .9902 level, which is the 61.8% retracement of the major move produced by the December 2016 high down the February 2018 low, and that led into a build of resistance off of the parity figure, which was looked at last week. Last week saw a lower-high build, opening the door for tight stops above resistance, and prices have quickly reverted back to the .9902 level.

At this point, lower-high resistance around the .9950 area could keep the door open for short-side setups, and this can remain as one of the more attractive ways to play for USD-weakness given the current backdrop.

USD/CHF Four-Hour Price Chart

usdchf usd/chf four hour price chart

Chart prepared by James Stanley

USD/CAD Screams Up to Fresh 18-Month High, Caution Around 1.3500

There are a couple of notable news items out of Canada in the coming days, making the backdrop around USD/CAD a bit more concerning as prices have burst up to a fresh 18-month high, closing in on the 1.3500 level. This has been a favored long-USD setup for me over the past month, and that theme can remain but a pullback might be in order before that door could re-open. The prior resistance level around 1.3423 can keep that prospect alive. This is from the 78.6% retracement that’s linked to the 61.8% marker that helped to catch support just a few weeks ago.

USD/CAD Four-Hour Price Chart: Higher-Low Support Potential

usdcad usd/cad four hour price chart

Chart prepared by James Stanley

AUD/USD: Are Bears on the Way Back?

After a fairly brutal first nine-month period between February and October, AUD/USD continued to sell-off with a strong degree of consistency, sticking below a bearish trend-line for much of the run. But October saw the respectable build of support even despite the US Dollar’s fresh highs and continued strength. I started to line the pair up for bullish plays to work with USD-weakness, and that theme ran fairly well through the month of November. But – the past couple of weeks have brought some change into the mix, and as looked at last Thursday, the pair started to trade within a bear flag formation after a re-test of a key support zone.

I set this one up as a USD-strength candidate for this week, looking for resistance to play-out at lower-highs, and so far that theme has shown potential as the prior support zone from .7185-.7205 has done a good job of holding near-term resistance.

AUD/USD Four-Hour Price Chart

audusd aud/usd four hour price chart

Chart prepared by James Stanley

NZD/USD: Potential Flip, Could Cut Both Ways

Similar story in NZD/USD as looked at above in AUD/USD. NZD/USD was on a stark bearish trend from April into October, at which point support began to build above the support level around .6400. That led into a very strong month of November in which the pair pushed in fresh highs. More recently, however, a lower-low has shown up and prices are currently finding resistance at a prior area of support. This could keep the door open for bearish setups; but – if support builds around the .6820 level, the door could soon re-open for bullish setups in the pair.

NZD/USD Four-Hour Price Chart

nzdusd nzd/usd 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.

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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