US Dollar, EUR/USD, GBP/USD, AUD/USD Talking Points:
- The US dollar then plummets last week’s aggressive outbreakdriven by fears of a negative NFP print this Friday.
- The dollar deluge is helping EUR/USD and GBP/USD anticipate their price decisions tomorrow. Meanwhile, AUD/USD continues to rise after tripping below the .7000 big fig last week. Which pairs are attractive to fade this USD weakness and which are more attractive to watch bearish continuation?
- The analysis in the article is based on: price action and card formations. For more information on price action or chart patterns, check out our Referus Education section.
It’s been a wild ride in the US dollar for the past few weeks and, given the economic calendar, that looks set to continue Nonfarm payrolls comes by Friday. There is also a PMI release of services on Thursday morning, but it is the jobs report that seems to have the attention of so many traders. This morning’s ADP report printed a bottomless -310k versus an expectation of +201k. And while ADP is a poor predictor of NFP, it reflects the circulating story that Friday is beginning to expect a negative NFP print.
This could be a big change from the data that has driven the Fed into a walking stance, as we heard on last week’s FOMC rate decision. As inflation continued to rage last year, the Fed consistently pointed to labor market weakness as a reason not to raise. Even in Dec, when the Fed started opening the door for 2-3 hikes in 2022Powell believed that the launch would not happen until the Fed was satisfied with the “full employment” of the US economy.
This negative employment data is making it rethink, at least in some markets. Rates remain high, but the US dollar has caused a torrential downpour, completely wiping out last Wednesday’s Fed-fueled gains.
As I mentioned on Monday, the US dollar is built into a evening star formation – marked with a strong bullish candle on Thursday followed by a doji on Friday, completing the formation after Monday’s reversal.
Evening star formations are often tracked for the purpose of bearish reversals, often associated with tops in a market. And so far this week price action has moved in that direction with more weakness on Tuesday and so far on Wednesday.
US Dollar Daily Price Chart: Evening Star
Chart prepared by James Stanley; USD, DXY on Tradingview
US Dollar: Back to Range Support
At the moment, the USD is holding support at a well-known level of 95.86. This price was quite in play last year and has a long-term reference as this is the 50% mark of the currency’s big move from 2001-2008. This award helped establish range support through December and into the new year. Most recently, it showed earlier this month as a short-term resistance that turned into support as bulls pushed prices higher.
Also note: the RSI on the four-hour chart has made a quick trip into oversold territory without crossing the 30-line, at least not yet. But this does highlight the recent volatility as this indicator flashed an oversold value a few weeks ago after the 7% CPI printout from the US., to enter an oversold state after last week’s FOMC.
While RSI can be a terrible timing indicator, it does highlight the danger of aggressively selling an already oversold market, especially when testing much of the longer-term support. This could also point to the potential for a near-term bottom that has been in place for too long, leaving the door open to bullish USD scenarios as we approach some key rate decisions on the calendar for tomorrow.
US dollar four hour price chart
Chart prepared by James Stanley; USD, DXY on Tradingview
EUR/USD Morning Star
The mirror image of that evening star in the US dollar is the morning star formation that brewed in EUR/USD. I wrote about that yesterday and thenEUR/USD held resistance in a familiar area of 1.1272.
Since then, prices have broken out and are moving towards the next resistance level, which I plotted at previous resistance of an ascending triangle formation that filled in a few weeks ago; and that’s at 1.1374.
The big driver here is rising interest rate expectations from the eurozone, hard as that may be to believe. That, coupled with expectations for a negative NFP print out of the US, has turned the fundamental tables 180 degrees from last week and of course evidenced by the near-term price action.
However, this could lead to an interesting blurring opportunity for tomorrow ECB rate decision. Prices in EUR/USD on the four hour chart have not moved into overbought territory yet – but the recovery has been sharp so far and there may be some additional push ahead of tomorrow’s interest rate decision. Traders can look for a push back below 1272 to mark bears re-enter the equation, at which point the earlier support zone comes into play around 1187-1212.
EUR/USD four hour price chart
Chart prepared by James Stanley; EURUSD on Tradingview
Cable has shown a strong four-day rally after last week’s sell-off wiped out 61.8% of the previous bullish trend. Yesterday saw bulls fight back to the 1.3500 psychological level but that was followed by another breakout at the top with a trip to Fibonaccia resistance at 1.3581. This is the 23.6% retracement of the big step 2020-2021, and the longer term bull flag stays in order.
This could remain an interesting option for USD short scenarios. The four hour chart is currently overbought, so a pull back to near term support from previous resistance around 1.3524 looks like an attractive way to move forward. If the pullback is not visible, care should be taken as far as the 1.3600 lever, an earlier zone of support-twisted-resistance.
GBP/USD Weekly Price Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
AUD/USD Bounce off the Big Fig
There was a tariff decision from Australia earlier this week. Like many major FX pairs, USD weakness has definitely overtaken everything else.
In AUD/USD, however, that backdrop is complicated by the fact that prices plunged below a key point on the chart on the .7000 lever last week. This has been a major bottleneck in AUD/USD price action for a few years now. Buyers have so far refused to admit much below that price, and this has allowed the formation of a falling wedge.
Such formations are often approached for the purpose of bullish reversals. Sure, that scenario looks like it needs some help from the USD with continued weakness, but the formation is what it is, and this could hold the door open for upside power until it is wiped out.
AUD/USD Weekly Price Chart
Chart prepared by James Stanley; AUDUSD on Tradingview
— Written by James Stanley, Senior Strategist for Referus
Get in touch and follow James on Twitter: @JStanleyFX