US Dollar Price Action Setups: EUR/USD, GBP/USD, USD/CAD
US Dollar Price Action Talking Points:
- The US Dollar continues to claw back 2020 losses, with a recent bullish breakout from an inverse head and shoulders pattern.
- EUR/USD is making a fast approach towards 1.2000 – and if this price does come in as support, it could help to thwart USD-bulls, at least near-term.
- The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
The US Dollar is threatening a deeper bullish move today as the currency has broken above the neckline of its inverse head and shoulders pattern. I had highlighted this pattern in last week’s Analyst Pick, and since then buyers have pushed to allow for a breach up to a fresh monthly high, crossing the 91.00 figure on DXY. In this webinar, I looked at a series of setups around the US Dollar, of which a few have been chosen to be highlighted here.
US Dollar Making a Move Towards 92.00
With the 91.00 level being taken out as the USD broke above the neckline of the inverse head and shoulders pattern, the next obvious spot of possible resistance on the chart rests around the 92.00 handle. There are multiple Fibonacci levels within close proximity, and this zone helped to elicit a strong bounce back in September when USD-bears ran into a brick wall of support.
The complication, as shared during the webinar, is the fact that to get to 92.00 in the USD, we’d likely need to see a larger breakdown in EUR/USD, which is fast approaching the 1.2000 level. We’ll look at EUR/USD in a bit more depth below but, this could impede the continued bullish move in the USD. During the Q&A a valued and regular attendee pointed out another key level – around 91.50, which may sync better with a 1.2000 support test in EUR/USD.
In this scenario, the US Dollar may find short-term resistance around 91.50 as EUR/USD finds support around 1.2000. After which, the USD pullback could be followed for higher-low support, in anticipation of another break up to the 92.00 area on the chart.
So, at this point, the US Dollar has put in a bullish reversal from the falling wedge that built-in late last year, allowing for the build of an inverse head and shoulders pattern – which has also been breached. This keeps the focus on a stronger USD until something shifts.
US Dollar Eight-Hour Price Chart
EUR/USD Making a Fast Approach Down to 1.2000
I’ve been talking about this one for a while as the 1.2000 level is a key psychological level in the pair. And this same price helped to elicit a big response of resistance when it first came back into the picture last September (same date of the USD support test at 92).
The 1.2000 price even offered a second bout of resistance in late-November, but bulls quickly backed the bid and soon posed the topside breakout.
But, as shared more recently, this prior zone of resistance hadn’t yet been tested for support, keeping the door open to a test. This also keeps the door open for reversal potential when/if that support test comes into play.
EUR/USD Daily Price Chart
GBP/USD Rising Wedge Opens Door to Reversal
GBP/USD has been stymied by a resistance level somewhere in the 1.3700-1.3750 area. This zone of resistance has held bulls at bay for much of the New Year, to the point that price action has built into a short-term rising wedge formation, inside of a longer-term rising wedge (maroon in the below chart). These formations will often be approached with the aim of bearish reversals, and this could be an enticing market to follow on the long side of the USD.
GBP/USD Daily Price Chart
USD/CAD – A Wedge Within a Wedge
Taking a step back, USD/CAD had built into a short-term falling wedge pattern coming into last week, right around the time that price action tested a key long-term level from a Fibonacci study around 1.2622. That support inflection led into the build of a morning star pattern, which is often approached with the aim of bullish reversals, and that theme took hold as buyers pushed the bid. This setup was highlighted in last week’s Analyst Pick with focus on both formations pointing in a similar direction. This allowed for a bullish break through the falling wedge, highlighting how the two bullish formations had helped to bring on higher prices.
But – that breakout has run into yet another level of resistance, as taken from another falling wedge formation but this one from a much longer-term horizon. The resistance trendline on the below chart connects the March and October swing highs; and for the past four trading days has helped to hold bulls at bay.
Buyers haven’t yet given up – so there’s still potential for a bullish breach, and there’s an obvious spot of resistance potential a little further ahead from 1.2952-1.3000.
USD/CAD Daily Price Chart
--- 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.