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US Dollar Price Action - Trade or Fade: EUR/USD, GBP/USD

US Dollar Price Action - Trade or Fade: EUR/USD, GBP/USD

James Stanley, Strategist

US Dollar, EUR/USD, GBP/USD Price Analysis

  • Global markets remain in a vulnerable state, even with a trove of stimulus announcements in recent days.
  • Given the lack of continued strength in risk markets on the back of those announcements, combined with the profuse move of USD-strength, the question should be asked as to whether there are concerns around structural issues underlying the global economy.
  • The particular pain point appears to be Europe, as this is the current epicenter of the pandemic and European economies were already in a relatively fragile space before this all started to take place.

US Dollar With a Busy Past Month – Three Year Highs to Yearly Lows, and Back Again

Markets remain in flux and as discussed in the early portion of this webinar, it looks as though the door is open for continued volatility.

The world is collectively wrestling a pandemic scenario that’s upending modern medical systems. The fear is that this is going to soon happen in the United States as the number of reported cases of the novel coronavirus continues to increase at an exponential rate. There’s already been profound moves across many macro markets: But there’s perhaps another item of worry right now, and that’s whether the collateral impact of the near-certain slowdown causes a cascade of risk aversion, similar to what happened in the fall of 2008.

This is illustrated by the recent rush into the US Dollar, along with the rather obscene move in US treasuries with almost the entire US yield curve pushing to all-time-lows. In the US Dollar itself, the past few weeks have been especially eventful, as a sell-off in the early-portion of May has been entirely erased, and then some as markets have rushed back into the safety of the USD.

The US Dollar hit a fresh three-year-high less than a month ago. And then just a couple of weeks later, set a fresh yearly low. Already the USD is knocking on the door of that prior swing-high, threatening to make a run at the 100.00 marker on DXY.

At this point, across major FX-pairs, traders have to decide whether they want to chase the US Dollar higher, looking for a continuation of this recent theme of strength; or whether they want to fade the move.

US Dollar Weekly Price Chart

US Dollar Weekly Price Chart

USD on Tradingview

EUR/USD Back Below 1.1000 As Sellers Re-Take Control

Along with that crush of USD-strength has been a similar theme of Euro-weakness. Given current events, there may be concern of another European Financial Crisis as the continent is now the epicenter for the coronavirus. Given that the ECB was already stretched from a policy perspective, combined with the fact that many European economies were vulnerable even before the spread of the virus, the major concern now may be that the near-certain economic slowdown that will follow may create larger issues with sovereign debt from countries like Italy.

The big question here – can Christine Lagarde save the day should larger issues show. In EUR/USD, the pair just pushed below 1.1000 again, and there are a couple of areas of potential short-term lower-high resistance to show-up, with the nearby area of prior support around the 1.1052 level as the 61.8% retracement of the February bullish move.

EUR/USD Two-Hour Price Chart

EURUSD EUR/USD Two Hour Price Chart

EUR/USD on Tradingview

GBP/USD Encounters Long-Term Support

It’s been a brutal backdrop in Cable of recent, and GBP/USD has just re-tested a long-term trendline that had last come into play in August/September of last year. This trendline can be found by connecting swing lows in 1985 and 2016; the projection of which had helped to mark the low last year. There’s also a bit of confluence, as this is nearby the psychological 1.2000 level that came into play earlier today; combined with the 35-year low around 1.1950 from the flash crash of 2016. This could be an interesting area for those looking to fade the recent move of strength in the US Dollar.

GBP/USD Monthly Price Chart

GBPUSD Monthly Price Chart

GBP/USD on Tradingview

--- 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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