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US Dollar Price Action Setups: Mid-Week Strategy Check-Up

US Dollar Price Action Setups: Mid-Week Strategy Check-Up

James Stanley, Senior Strategist

US Dollar Talking Points:

  • The US Dollar had a strong start to 2021, but was this but a pullback in a bigger-picture bearish theme?
  • If USD bears are to prevail – they’ll likely need an assist from Euro bulls, and the European Union does not appear to be in a strong spot at the moment with lockdowns, Covid and a slower return of economic strength than what’s showing elsewhere.
  • 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.
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The US Dollar showed up with a surprising spate of strength in Q1 of this year, coming on the heels of a bleeding downtrend that dominated the currency’s final 8 months of 2020 trade.

But after going deep into oversold territory and as the DXY had formed into a falling wedge, often approached with the aim of bullish reversals, the stage was set for a Q1 counter-trend theme of US Dollar strength, and that scenario ran very visibly into the end of the quarter. At this point, the US Dollar has set a fresh four-month-high on the final day of Q1, after which sellers have started to push for a consistent move lower.

This goes in the direction of the bigger picture trend, the same that held strong through last year; but it also flies directly against the strength that was on full display in Q1.

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US Dollar Daily Price Chart

US Dollar Daily Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

Taking a step back to look at that bigger picture – and this puts that Q1 rally into scope. Price action in the USD did test above the 23.6% Fibonacci retracement of last year’s sell-off, but it wasn’t for long. And sellers have already pushed back below this key spot on the chart, keeping the door open for a return of the longer-term bearish trend.

To learn more about Fibonacci, check out the Fibonacci sub-module inside of DailyFX Education

US Dollar Weekly Price Chart

US Dollar Weekly Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

EUR/USD Bounce from Fibo Support

The US Dollar and DXY are highly sensitive to the Euro as the single currency makes up more than 57% of the allocation into DXY. So, suffice it to say, the US Dollar will often have a hard time going anywhere with at least some help from the Euro.

In this specific case, that premise seems as important as ever – as a re-emergence of USD-weakness will also likely need some Euro strength, and the EU isn’t exactly in a strong spot at the moment with lockdowns, Covid and a slower economic comeback than what’s being seen elsewhere.

In EUR/USD, the pair sold-off for much of Q1, eventually finding support at a key Fibonacci level around 1.1736. That’s so far led to a bounce in Q2 trade but, at this point, the trend still appears bearish and this keeps the door open for further downside focus in EUR/USD. What could begin to moderate that – potential resistance in the 1.1965-1.2000 zone, a breach of which would bring a much more bullish picture into the pair. This could expose a deeper drive towards the 1.2134-1.2167 area on the chart.

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EUR/USD Daily Price Chart

EUR/USD Daily Price Chart

Chart prepared by James Stanley; EURUSD on Tradingview

--- Written by James Stanley, Senior 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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