US Dollar Price Action Setups Into Year-End: EUR/USD, USD/JPY, AUD/USD
Yesterday brought the final FOMC rate decision of the year, and the Fed hiked rates for the fourth time in 2018. The bank did soften guidance for next year, although this may have been not quite as dovish as markets were looking for as stocks have been crushed in the aftermath. The US Dollar, on the other hand, posed an initial move of strength around the announcement and accompanying press conference; followed by a pronounced move of weakness that began around the open of trading in Asia.
Given the backdrop, with next week bringing Christmas and the week after bringing New Years, this webinar was about taking a step back to look at swing setups going into year-end. The US Dollar was the centerpiece, and I looked at four setups for USD-weakness and three for USD-strength.
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US Dollar to Fresh Monthly Lows Following FOMC Rate Hike
After posing an initial move of strength around yesterday’s rate hike, the US Dollar has fallen-down to fresh monthly lows, crossing the key Fibonacci level at 96.47 in the process. To put the backdrop in scope, the US Dollar was very strong in the month of October as fears around Italy were running high, bringing along with it a bearish move in the Euro as investors prepared for an acrimonious scenario between the European Commission and the Italian government. Since then, however, the Dollar has been rather range-bound, and this recent bout of weakness can help to put the currency in a more bearish light.
US Dollar Daily Price Chart: Fresh Monthly Lows Post-FOMC
EUR/USD Brings Bullish Potential After EU/Italy Deal
This was perhaps lost in the shuffle given the excitement around yesterday’s FOMC rate decision, but the deal between Europe and Italy removes a major stumbling block for the Euro. Pain in the currency showed up in April around the election of Euro-skeptic parties to lead Italy, driven by the apparent fear of a debt stand-off between the newly-installed government and the European Commission. That fear began to come to light in September and held through October, driving EUR/USD to fresh yearly lows.
Last Thursday brought the announcement from the ECB that the bank was going to finish bond buying via the bank’s QE program; and then this week’s announcement of a détente between the EC and Italy can further open the door for gains in the single currency.
In EUR/USD, the area of interest is around 1.1500. This is the top-end of a support-turned-resistance zone that I’ve been following for the entirety of Q4, and a topside break through this area opens the door for bullish continuation setups. In the webinar, I discussed how this could be done in a risk-cautious manner.
EUR/USD Eight-Hour Price Chart
GBP/USD Tests Trend-Line Resistance, Brexit Remains a Threat for Bulls
GBP/USD has continued to rally after last week’s short-covering continued up to fresh weekly highs. The resistance level that I was following at 1.2671 has slowly given way as buyers have continued to push, and prices appear poised to re-test the psychological level at 1.2750.
Of importance – Brexit remains an issue for bullish scenarios in the pair, as the second week of the New Year is expected to bring the Brexit vote in Parliament and that still looks unlikely to pass.
GBP/USD Four-Hour Price Chart
USD/JPY for USD-Weakness Strategies
I started looking at the short-side of USD/JPY coming into this week, and in short-order both targets came into play as the pair plunged down to fresh monthly lows. That selling pressure has remained through this morning, and this can keep the short-side of the pair as attractive in the near-term.
USD/JPY Daily Price Chart
USD/CAD for USD-Strength Strategies, Caution at 1.3500
USD/CAD is testing a big level at 1.3500, as USD-strength has continued to show following yesterday’s FOMC rate decision; and this can keep the pair as attractive for bullish USD strategies. This indicates that even with the post-FOMC weakness in the US Dollar, CAD has been weaker, and this is an attractive them as the end of 2018 approaches. In the webinar, I looked at a couple of different support levels of interest for bullish strategies in the pair.
USD/CAD Eight-Hour Price Chart
AUD/USD for USD-Strength Strategies
Another interesting reaction around the US Dollar from yesterday’s FOMC rate decision showed in AUD/USD. Aussie was very strong in the month of November and prices started to pullback in early-December. I had looked at price action building into a bear flag formation after testing that key zone on the chart last week, and that formation has continued to push-lower.
Around the Fed yesterday, AUD/USD perched down for a test at .7100; and even when USD-weakness came back, AUD/USD merely set lower-high resistance before falling again. This keeps the short-side of the pair of interest going into year-end.
AUD/USD Four-Hour Price Chart
NZD/USD for USD-Strength Strategies
Similar story as the above on AUD/USD, where a strong month of November has recently pulled back and the pair is now putting in bearish connotations. This can keep the short-side of the pair of interest for strategies around USD-strength going into year-end.
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.
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX