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US Dollar Price Action Setups post-CPI: EUR/USD, GBP/USD, USD/JPY

US Dollar Price Action Setups post-CPI: EUR/USD, GBP/USD, USD/JPY

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US Dollar Talking Points:

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Inflation continues to fall in the United States and this morning’s print brought the sixth consecutive month of headline CPI moving-lower, following the peak of 9.1% that showed in June of last year.

The US Dollar dropped after the release, setting a fresh seven-month-low and trading below the 103 handle that had tried to hold the lows coming into this morning’s data. Support showed at a trendline projection, which originated in June of 2021 and connects to the February 2022 swing low. That projection came into the picture just after the CPI-fueled fall and has so far led to a mild bounce. That bounce is far from home free, however, as short-term resistance has played-in off the same 103 level of prior support. But, at this point, it has helped to stem the bleeding.

There’s another notable area of support in-play this morning, as the current low for DXY has printed right at the 61.8% Fibonacci retracement of the 2022 bullish move. This adds a bit of confluence to the matter.

US Dollar Daily Price Chart


Chart prepared by James Stanley; USD, DXY on Tradingview

USD Short-Term

As noted above, bulls are far from home free here as we simply have a slowing of the bleeding with no evidence yet of bulls re-taking control after last week’s PMI-fueled reversal. But, given recent price action there’s some context to work with.

The trendline bounce this morning pushed back-above 103 at which point sellers hit it again, so that becomes the first hurdle. Above that we have the resistance from earlier this week at 103.45, which was prior swing support. And above that we have 103.82 which was the 2017 swing high until coming back in as support more recently.

If bulls can budge above that spot, longer-term reversal scenarios will start to look more attractive. So, they have their work cut out for them but there’s still a pathway-forward.

At this stage, bullish reversal potential can remain provided bulls hold higher-low support above this morning’s inflection at the 102.33 Fibonacci level.

US Dollar Hourly Chart


Chart prepared by James Stanley; USD, DXY on Tradingview


EUR/USD started to test a big zone of resistance on Monday of this week and sellers had an open door to push a bearish swing. Price had just set a fresh six-month-high and the trend had stalled. At the very least, one might expect some profit taking after the breakout, which would allow for the two steps forward, one step back type of logic that often accompanies healthy trends.

But there was barely a step back as Tuesday’s candle printed as a doji and Wednesday’s quick attempt to breakout had fallen flat. The initial reaction in EUR/USD was a quick breakout to a fresh eight-month-high which quickly pulled back, with support showing at the same spot of prior resistance around the 1.0750 psychological level.

That has since led to another topside run, keeping control in bulls’ hands.

EUR/USD Hourly Chart


Chart prepared by James Stanley; EURUSD on Tradingview

EUR/USD Longer-Term

EUR/USD is now trading with a fresh bullish breakout while trading at eight-month-highs. The next significant spot of resistance is just overhead, at a prior double top formation from last April around the 1.0933 level.

For bears, the ideal scenario would be a hold of lower-high resistance below this morning’s spike-high, somewhat similar to the mirror image of the USD scenario above. But given the response to 1.0750 thus far, the bullish trend isn’t yet finished, and more evidence will be needed before there’s bearish scenarios to work with.

EUR/USD Daily Chart


Chart prepared by James Stanley; EURUSD on Tradingview


GBP/USD put in a bullish move this morning but in a much more restrained manner than what showed in EUR/USD. Cable remains within the confines of prior range context with this morning’s high at the same 1.2223 resistance level and today’s low at the same 1.2105 support. The three days of support at 1.2105 would give me a slight bullish bias but, logically, if I want to track bearish-USD scenarios EUR/USD may be a better fit, or perhaps even USD/CAD.

GBP/USD Daily Chart


Chart prepared by James Stanley; GBPUSD on Tradingview


I’ve saved the big one for last.

More signs continue to stack that some form of change may be on the horizon for Japanese monetary policy. With inflation surging to 40-year-highs and with a leadership change expected atop the BoJ in a few months, expectations have been building for some form of less-dovish monetary policy. And given how loaded the carry trade had become last year on the back of cheap Yen, there could remain considerable room for that theme to run.

There was the policy review in late-December that led to a strong JPY push as carry trades quickly unwound. My Top Trade for Q1 is the bearish side of GBP/JPY, largely on this premise.

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USD/JPY is testing below the 130 psychological level again and this marks a dramatic fall from the 150 level that was in-play just a few months ago. Ahead of yesterday’s Tokyo open, USD/JPY had even held some bullish influence, with higher-low support holding at a key spot, as a falling wedge formation had led to a breakout last week. USD/JPY price action had held resistance at the 132.90 level that I looked at earlier this week, until another driver appeared…

Last night brought another clue that change may be on the horizon for the Bank of Japan, and that’s led to another leg of JPY-strength as carry trades have further unwound. USD/JPY has since held support at the familiar low of 129.50. But this seems a vulnerable spot of support given how quickly price has returned to this price.

USD/JPY Daily Chart


Chart prepared by James Stanley; USDJPY on Tradingview

--- Written by James Stanley

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.