EURUSD, GBPUSD, USDCAD, AUDUSD Talking Points:
- Last week’s spurt of USD weakness has set an interesting stage in a number of pairs.
- EURUSD and GBPUSD continue to carry reversal potential despite seemingly negative backdrops in each representative economy.
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It’s been a busy summer so far as the month of June has seen some workable volatility across a number of asset classes. At the source of much of this volatility is expectations around the Federal Reserve, and this is related to a theme that showed up in Q4 of last year. In the opening days of October, Jerome Powell remarked that he felt that the Fed was ‘a long way’ from the neutral rate, implying that the Fed had plans for more hikes in 2019.
Risk markets did not like this at all, and in short-order US equities had turned with aggression and continued to sell-off. It was the December Fed meeting that was a real mess, as the bank held to a hawkish forecast for 2019, looking for another two hikes in the coming year. This extended that risk-off move, and it wasn’t until Fed commentary began shifting in a dovish direction that equity strength began to show.
At the March rate decision, the FOMC eliminated those two dots looking for 50 basis points of rate hikes in 2019. And this helped the risk trade move-higher; and that theme lasted all the way into the Fed’s next rate decision in the opening day of May in which Chair Powell, once again, attempted to strike a tone of stability by not committing to future rate cuts. This is when the most recent round of risk aversion came back-in, and that theme lasted all the way until Powell’s comments last Tuesday, which were more dovish in nature; and this helped US stocks to claw back a large portion of those prior May losses.
Will the Fed continue to get more dovish at next week’s FOMC rate decision? Or, perhaps more importantly – will they meet market expectations for how dovish they should be? That might be difficult at the moment given the fact that expectations have moved towards three full 25 basis point cuts by the end of this year.
In the US Dollar, this impact has been noticeable. After clinging to a bullish trend for much of the period since last August, USD bears have come back to push the currency-lower throughout June. Prices have found support at a key level of confluence on the chart, taken from around the 96.50 area.
US Dollar Daily Price Chart
Chart prepared by James Stanley
Notably, the longer-term look around USD has shifted. While the currency was trading in an ascending triangle coming into Q2, the posturing around the highs has built-in another formation, and this one points in the opposite direction. A rising wedge will often be approached with the aim of bearish reversals, and that’s what’s started to show on the weekly chart of USD.
US Dollar Weekly Price Chart
Chart prepared by James Stanley
EURUSD Bullish Prospects?
Going along with the potential for a larger breakdown in USD is the prospect of a bullish move in EURUSD. This would be similar to themes noticed in Q4 of 2015 as well as most of 2017 and Q1 of 2018. Sure, Europe isn’t in a healthy spot. But that much has been known for sometime; more important is what’s left to price-in, and if we do have a more dovish Fed and a more bearish US Dollar, the topside of EURUSD can remain as attractive.
EURUSD Daily Price Chart
Chart prepared by James Stanley
GBPUSD
I had looked at this earlier today and the same type of backdrop as above with EURUSD applies. On a short-term basis, a range has developed in the pair, and this could be traded like any other range, perhaps with a bullish bias for those that want to look for longer-term moves of strength in the pair, or weakness in USD.
GBPUSD Weekly Price Chart
Chart prepared by James Stanley
USDCAD Bounce From Two-Month Lows, Resistance Potential At Prior Support
I came into this week looking at the long side on USDCAD and prices have since posed a push up to a key area of potential resistance. This zone runs from 1.3361-1.3385, and a hold of resistance there opens the door for short-side strategies in the pair.
USDCAD Daily Price Chart
Chart prepared by James Stanley
AUDUSD Breakdown Potential
I’ve been tracking USD-strength in AUDUSD after last week’s flare-up to resistance in the pair. Aussie had the peculiar showing of a ‘rate cut rally’ and this was likely more resultant of that spate of weakness in the US Dollar. But, as looked at in this week’s FX Setups – a key zone of resistance soon came into play, and since then prices have pushed right back down towards the lows. This keeps the door open for deeper breakdown potential, particularly for strategies based around USD-strength.
AUDUSD Eight-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 have a section for each major currency, and we also offer a plethora of resources on Gold or 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
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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
