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

US Dollar Talking Points:

  • The US dollar retreated from a new 19-year high hit last Thursday.
  • EUR/USD has bounced off parity and the focus is on the ECB for tomorrow’s rate decision – and that may drive USD trends ahead of the week’s FOMC rate decision next.
  • The analysis contained in the article is based on price action and graphic formations. For more on price action or chart patterns, see our DailyFX Training section.
  • Quarterly forecast just released by DailyFX and I wrote the technical part of the US dollar forecast. To get the full article, click on the link below.

The US dollar retreated after last week’s jump to new 19-year highs. As I wrote last Thursday, this took more than a EUR/USD focused theme. After the major pair hit parity last week, buyers were unable to stem the declines and last Thursday morning a troubling breakout was seen below the big EUR/USD figure.

This week, European inflation was again above 8% (8.6%, to be exact) and core inflation was at the same level of 3.7% as last month. Right now, the ECB is still sitting on negative rates, which doesn’t make much sense given the levels of inflation seen in the Eurozone.

And this problem has the potential to create even more problems, as a drop in the Euro will push inflation even higher, as goods imported into the Eurozone are more expensive on a relative basis. At some point, the ECB needs to step up its tightening or the US needs to cool down, because as long as this divergence holds and the USD attracts capital flows from Europe to capture these new higher rates, the European economy remains in a vulnerable position. place and the repercussions of this fall in the currency will probably be felt in the months to come. And it could even offset the ECB’s tightening efforts, especially if we see that 8% inflation being dealt with by 25 basis point rate hikes.

Which brings us to the recent driver that has both helped the USD pull back as the EUR/USD soared, and that is the expectation of a 50bps move higher on the decision. on tomorrow’s rates. Of course, it has become fashionable for central bankers to surprise on the upside on rate hikes, as we saw the Bank of Canada hit 100 basis points earlier this month after the first move of 75 Fed basis points in over 25 years.

The bigger question is this: will a 50 basis point hike signal an ECB more ready to deal with inflation? Or will the bank remain loose and passive, instead presenting tomorrow’s hike as a one-off hike or the start of a slow, methodical hiking cycle? If the ECB can convince that it is ready to tackle inflation head-on by continuing to raise rates after tomorrow, then EUR/USD’s upward move could last a bit, although it may take some time. be awaiting the FOMC’s decision on rates. a week from now.

The US dollar

The US Dollar has now retreated for three consecutive days, helped by EUR/USD which finally found support outside of parity psychological level. And that support shows up in an interesting place, at 38.2% Fibonacci retracement of the major move of 1985-2008, plotted at 106.61. And there is a deeper support zone taken from previous resistance drawn around 105.52-105.79.

Two-hour price chart in US dollars

Chart prepared by James Stanley; USD, DXY on Tradingview

long-term USD

The monthly chart below highlights the Fibonacci retracement which produced the level currently helping to hold the low at 106.61.

Table of monthly prices in US dollars

usd monthly chart

Chart prepared by James Stanley; USD, DXY on Tradingview

EUR/USD

EUR/USD rallied slightly ahead of tomorrow’s action ECB rate decision, and this happened despite the fact that yesterday’s print inflation remained in extremely high territory. The move here appears to be a combination of short coverage ahead of tomorrow’s rate decision with what could be a legitimate pick of traders looking to play another defensive theme in the pair.

At this point, EUR/USD is holding around the levels I saw on Thursday, with resistance around the 1.0235 area and support coming in at previous resistance from around 1.0192.

There is another possible resistance point a little higher on the chart, and it is around the previous low of 1.0340. This ranges from 1.0357 to 1.0387, and could be an interesting place for potential low to high resistance. And if that doesn’t hold, if buyers are able to move forward after tomorrow’s rate decision, there is another area of ​​interest around 1.0609-1.0640.

EUR/USD two-hour price chart

eurusd two hour chart

Chart prepared by James Stanley; EURUSD on Tradingview

GBP/USD

When I looked at USD pairs last Thursday, I noticed that GBP/USD was attractive for counter themes, largely based on a formation of drooping corners who had built.

This falling wedge filled and prices reached the next point of resistance, drawn around the previous support in the 1.2000-1.2021 area. Since then, however, the bulls have not been able to break through much ground and resistance has continued to hold around this spot. The subsequent pullback found support at 1.1968, which I had watched yesterday.

At this point, this resistance remains vulnerable and if the bulls can retest, there is potential for a breakout with concentration until the next resistance around 1.2090.

GBP/USD two-hour price chart

gbpusd two hour chart

Chart prepared by James Stanley; GBPUSD on Tradingview

AUD/USD

The RBA took on a hawkish tone and that helped revive the Aussie. AUD/USD has been in a strong reversal so far this week, similarly breaking out of a declining wedge formation. Such formations are often followed with the aim of bullish reversals and so far this has continued to fill in the AUD/USD.

For this theme to continue, we will need to see more high-low support, and there is an earlier short-term resistance point, drawn from around 0.6850, which remains interesting for such an approach.

AUD/USD four-hour chart

audusd price chart

Chart prepared by James Stanley; AUDUSD on Tradingview

USD/CAD Breakout Collapsed

Last week was crazy for USD/CAD. The Bank of Canada out of the blue rate hike of 100 basis points which led to a rapid bid on the CAD and a decline in the USD/CAD.

But, the pair found support at 1.2950 and the next day saw the USD peak, as EUR/USD dipped below parity, allowing a massive USD/CAD reversal that led to a new yearly high. Since then, however, the pair has disappeared from all that spike and then some, with prices currently sitting at a weekly low, trying to hold support above the 1.2850 level.

For next resistance – look at this previous support, from around 1.2933-1.2950. For support, a break of 1.2815 opens the door for a move towards 1.2750.

Four-Hour USD/CAD Price Chart

usdcad four hour chart

Chart prepared by James Stanley; USDCAD on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow james on Twitter: @JStanleyFX

element inside the

element. That’s probably not what you wanted to do! Upload your application’s JavaScript bundle to the item instead.