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US Dollar Price Action Setups: EUR/USD, GBP/USD, USD/CAD, USD/JPY

US Dollar Price Action Setups: EUR/USD, GBP/USD, USD/CAD, USD/JPY

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US Dollar Talking Points:

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US Dollar bulls are going to have to wait.

Despite a somewhat hawkish tone from Chair Powell during the opening remarks of today’s rate decision, the US Dollar was unable to hold on to an earlier bounce that began after the release of the statement. The Greenback has since pushed down to a fresh five-month-low, riding along the same support trendline that helped to catch the low yesterday.

The 103.82 level remains relevant. Price is testing below that right now, but if today’s daily bar closes above, that could keep the door open for bullish reversal scenarios in the DXY going into rate decisions out of Europe and the UK tomorrow.

US Dollar Daily Price Chart


Chart prepared by James Stanley; USD, DXY on Tradingview

US Dollar Longer-Term

It can oftentimes be difficult to put past trends into scope. That move in the USD had become extremely overbought by a number of metrics in Q3, historically overbought, even. And this isn’t a small cap tech stock – it’s the foundation of global economy and trade of the US Dollar, and price moves of that nature have reverberations, some of which still haven’t even been felt.

So, while there is certainly fundamental drive emanating from rate decisions or economic data, there’s also a long-term trend to keep in consideration, and this helps to explain why bears have had so much run in the DXY of late.

From the weekly chart below, we can highlight how price hasn’t quite erased 50% of the move that started in early-2021; and of the move that began this February, we’ve just passed the half-way point as the 104.70 level (the 50% retracement of that major move) was in-play just last week.

US Dollar Weekly Chart


Chart prepared by James Stanley; USD, DXY on Tradingview


The ECB was late to the party with rate hikes this year, largely out of fear. European growth lagged behind that in the US so even as inflation ran-higher, the ECB appeared to have little flexibility.

That’s changed over the past few rate decisions and we can see that reflected in the EUR/USD chart, which has gained more than 1,000 pips from the late-September low.

Last week saw price close the weekly EUR/USD bar as a doji, right at a trendline projection taken from the May 2021 and February 2022 swing highs. There was an initial pullback earlier in the week, but price has since reversed and posed a breakout from that confluent spot with EUR/USD now trading at fresh five-month-highs.

The big question is whether the ECB can satisfy bulls through tomorrow’s rate decision, at least enough to keep them bidding the currency higher and beyond this resistance. The next major spot of resistance on the chart is a confluent spot around the 1.0750 psychological level. For support, there’s a chunky block sitting below price running from 1.0500 up to a Fibonacci level at 1.0579.

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EUR/USD Daily Chart


Chart prepared by James Stanley; EURUSD on Tradingview


Cable has come quite a far way away from the collapse-like move that showed up in GBP/USD in late-September. While there was a chorus call for parity at the time, price has since rallied from that low without testing back below the 1.0400 handle.

And similar to EUR/USD, that bullish trend has just continued to drive so far in Q4 and at this point, GBP/USD is re-approaching the 1.2500 psychological level.

There’s a Bank of England rate decision and the big fear here is the same as around the ECB: Recessionary fears that may constrain the Central Bank from further hiking rates next year. This could create deviation in rate expectations between the US and the UK, which could allow for trends to change.

At this point, however, the trend is bullish and price caught a bounce from the 200 day moving average a week ago. So, before bearish scenarios can come back into the picture, there would need to be some form of capitulation from bulls which hasn’t yet shown. If we end tomorrow with a long wick resistance reaction in GBP/USD, that door could start to re-open.

GBP/USD Daily Price Chart


Chart prepared by James Stanley; GBPUSD on Tradingview


The Canadian Dollar remains one of the weaker currencies and over the past month, it’s one of the few major currencies that’s been weaker than the US Dollar.

I had looked into the pair on Monday and there’s still a technical backdrop that could be workable for swing traders here. The Fibonacci level at 1.3652 held yet another inflection, and this opens the door for a support test at the 1.3500 psychological level, which is nearing confluent with a short-term bullish trendline.

This could be one of the more attractive ways of pushing for USD-strength given that recent CAD-weakness.

USD/CAD Daily Price Chart


Chart prepared by James Stanley; USDCAD on Tradingview


As I had shared on Monday, USD/JPY had a similar look as USD, with a tinge of additional bullishness that was brought upon by JPY weakness, so not too dissimilar from the above in USD/CAD, albeit shorter-term.

That statement remains a few days later, with price holding lower-high resistance at the Fibonacci level of 137.61; but the corresponding pullback has since held at a higher-low above the early-December swing. And at this point, the 135 psychological level is in-play, helping to hold the low, which keeps the door open for mean reversion scenarios. If bulls can pose a breach of the 135.58 swing, the door opens for a move back up to resistance at the 137.61 spot, and if that next test at the Fibonacci level comes after a higher-low, breakout potential can remain thereafter, looking for moves up to next resistance at 138.58 and then 139.60-140.00.

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USD/JPY Daily Price Chart


Chart prepared by James Stanley; USDJPY on Tradingview

--- Written by James Stanley, Senior Strategist, & Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX

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