US Dollar Rip, Dip, Rip Around CPI: EUR/USD, USD/CAD
US Dollar, EUR/USD, USD/CAD Talking Points:
- The US Dollar took a ride this morning, helped along by a massive beat on April inflation numbers.
- An initial jump was quickly faded, but the USD soon found support above a big area on the long-term chart and has since continued to rally.
This is an archived webinar from the DailyFX mid-week strategy check-up, and if you’d like to sign up for the next session, they take place on Wednesday mornings at 9:30 AM ET and, and the link below can get that taken care of.
Today’s session took place in the aftermath of a really strong CPI print, with headline inflation coming in at 4.2% versus an expectation of 3.6%. The Fed is targeting 2% and have previously said that they’re willing to let inflation run hot for a while without adjusting rates. The bank has continually said that they think inflation is ‘transitory,’ and price runs in key commodity markets like copper, tin, corn or copper wouldn’t compel the bank to hike rates or slow bond purchases. But this morning’s upside surprise was quite large, and this may be outside of what the bank was expecting.
The initial impact was a strong run of USD-strength but that really only lasted for a few minutes, price action quickly faded out the move with the US Dollar reverting right back to the big support zone that runs around the 90.00 handle on DXY.
But that was around the time that longer-term support began to play out, with the USD holding the low above the 90.00 handle and buyers getting more and more aggressive as we moved further away from the CPI release. For intermediate-term resistance, there’s a Fibonacci level around 90.82 and a big zone that was in-play last week around 91.32-91.40.
US Dollar Eight-Hour Price Chart
Taking a step back to look at the longer-term chart of the USD, and the area of support that came into play this morning becomes a bit more clear. The 90-handle on DXY had come into play yesterday morning and after today’s CPI print, the quick flare of strength was quickly faded until sellers were able to push down to the 90.16 level. But, this highlights the same issue that had come into play in early-Q1, when sellers remained aggressive but prices were caught at a big area of long-term support.
Will that support have a similar impact now that we’re about half-way through Q2? I’m still bearish on the currency but, as shared in the webinar, the first half of Q2 has already been heavily bearish and there’s now a big zone of support in the equation that may stall or pause the move. To get the full Q2 Forecast for the US Dollar:
US Dollar Monthly Price Chart
Chart prepared by James Stanley; USD, DXY on Tradingview
EUR/USD Dips from Key Resistance
On the short-side of the US Dollar, I’ve been following EUR/USD pretty closely. Last week saw the pair put in a strong reversal after getting very comfortable around support at 1.2000. That support grind also included the build of a falling wedge, which is often followed with the aim of bullish reversals.
But it was last week’s NFP release that really seemed to make a mark, with EUR/USD jumping right up to a confluent zone of resistance that runs from 1.2134-1.2167. That zone held the highs coming into this morning, and the fast spike of USD-strength saw EUR/USD push down to a support level I had highlighted on Monday, plotted around 1.2072.
That support led to a bounce as USD-weakness came back post-CPI; but as USD-strength has continued to trickle-in after, EUR/USD has pushed back down to this area on the chart.
As I had shared in the webinar, 2072 had already given a support inflection and recurrent tests would not be as attractive. Instead – there’s deeper support potential around the 1.2033 area, and if that can’t hold, there’s the possibility of another re-test at the 1.2000 handle. If the pair cannot stay above 1.1965-1.2000, we’re likely dealing with a case of extended USD-strength and the topside of EUR/USD would no longer be as attractive.
EUR/USD Four-Hour Price Chart
USD/CAD Bounces from Six-Year-Low Support
On the short-side of the US Dollar, USD/CAD can remain attractive, as well. The Canadian Dollar caught a new life a few weeks ago when the Bank of Canada became one of the first to talk about post-pandemic policy. That plus continued strength in Oil prices gave the currency a shot-in-the-arm, and when meshed up with what’s been a really weak US Dollar, there’s been ample motive for the pair to continue pushing-lower.
This morning saw USD/CAD temporarily set a fresh six-year-low, albeit barely before prices snapped back. There’s also the issue of a major psychological level sitting just underneath, taken from around the 1.2000 handle.
As shown in the webinar, this can lead to a difficult situation of trying to work with a bearish but oversold market. I had shared two possible ways of moving forward: Either looking for a quick breakdown on short-term charts or, alternatively, looking for a pullback to lower-high resistance; each of which can help to keep the door open for bearish continuation scenarios. The lower-high resistance potential I had pointed out in the webinar is around the 1.2127 area on the chart; and a hold here can keep the door open for bearish continuation scenarios.
USD/CAD Weekly Price Chart
--- 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.