EUR/USD, USD/JPY, USD/CAD: USD Price Action into the Election, FOMC

US Dollar Talking Points:

• The US Dollar just finished its strongest month in two years, with DXY gaining 3.11% in October.
• The weekly bar, however, has shown a bit of indecision taking on appearance of a spinning top. This was the first red weekly bar since late-September and that took hold after a continued stall at the 104.57 level. It was the NFP reaction that’s of interest, as sellers had an open door to prod a deeper pullback after an abysmal headline print. Instead, buyers took over and erased a chunk of prior losses.
• Next week brings the Presidential Election on Tuesday and the FOMC rate decision on Thursday. This could be a pensive week for the headlines but as usual I’ll be tracking price action as a principal point of interest.
• I’m hosting a webinar on Tuesday ahead of the election and I’ll look at price action setups across major FX pairs. You’re welcome to join:

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US Dollar Bullish Trend Pulls Back

It was a strong month of October but finally, some resistance was able to hold in the US Dollar. The same 104.57 level that was in-play the week before held two additional tests after the weekly open and buyers were unable to make much ground above.

The initial pullback from that price in the prior week held support at prior resistance of 104-104.07. But the bounce from support up for a second test of resistance saw a deeper pullback, with the zone looked at on Tuesday around 103.82 ultimately coming in to help hold the lows. That was the same 200-day moving average that had given a bit of resistance earlier in October and after a dramatic Friday morning with an abysmal headline NFP number, bulls came in to defend that price and push back above the 104.00 handle.

US Dollar Four-Hour Price Chart

US Dollar Daily

As I said on Tuesday, I’m still of the mind that this is a bullish trend and it’s theirs to lose. The reaction to support at 103.82 further reiterates that and now that RSI has moved off overbought conditions, buyers have an open door to push up to fresh highs.

Overhead, however, exists some big resistance points that could eventually quell that buying demand. There’s a shorter-term spot at 104.80 but more pertinent in my view is the 105.00 handle. That’s a major psychological level but there’s also several other points of interest around the same spot, with prior swing highs and lows along with Fibonacci levels from a variety of major moves.

If that level trades quickly, it will seem a rational spot for bulls to look to take profit on the move and if it’s accompanied with another trip into overbought territory from RSI on the daily, that could further cement that theory.

With that said, if the move-higher shows in a grinding fashion with two-way action, hinting that shorter-term trend traders are taking profits on the way up, there could be continued bullish potential for the trend up to around the same 106.00 level that was last in-play in late-June, just before the currency started to turn lower with speed.

US Dollar Daily Price Chart

US Dollar Bigger Picture

Much like I had looked at in EUR/USD in September, we have to call the longer-term backdrop what it is:  A range. And that’s true in the US Dollar and DXY, as well, as the currency has spent most of the time since the 2023 open with some element of back-and-forth price action. That’s what makes that 106.00 level important. And above that, 106.50 was the spot that held the highs over a three-week period earlier in the year. And then 107.00 was a major point of contention a year ago.

US Dollar Weekly Price Chart

EUR/USD

I say this a lot but the Euro is 57.6% of the DXY quote so when looking at the US Dollar, it’s worthwhile to also look at the Euro.

I looked at a big spot of support a couple weeks ago in EUR/USD at 1.0765 which ultimately ended up holding the low and leading to a bounce. But as we came into last week’s close this was still very tenuous, and bulls weren’t exactly able to show much drive near resistance thereby leading to a continued bearish read in the pair.

The past week, however, has shown a bit more push on the long side with the first four days of the week all closing as green, with another test and hold of the same trendline on Tuesday leading to a higher-low.

At this point, bulls haven’t been able to do much beyond the 200-day moving average. And on the morning of NFP, it was the next resistance at 1.0900 that held the highs and that brought a hurried move which, at this point, retains bearish engulfing potential on the daily chart.

As shared in the pre-NFP article on Thursday, EUR/USD is still my pair-of-choice for USD strength scenarios and if we do see the Dollar bullish trend run next week, this is the spot that I want to focus on. The longer-term chart shared below will explain further.

EUR/USD Daily

EURUSD AD

EUR/USD Longer-Term

Going back to the bigger picture, a range remains in EUR/USD. I was harping on this back in September as buyers had stalled at 1.1200 which represented a lower-high inside of the 1.1275 level that held the highs last year.

Sellers came on quickly in Q4, perhaps too quickly, as the pair quickly went oversold. But there’s still room for that range to continue filling in, as the 2024 lows around 1.0611 are in view. That’s a zone that I’d expect to be in-play with a push on DXY up to the 105.00 handle.

Longer-term in EUR/USD, it was the 1.0500 level that held the lows over a few weeks last year. In a continued USD-run, I’d equate that zone with around 106.50-107.00 in DXY and if those prices come into play quickly, like within the next couple weeks, then we may be able to entertain some bigger picture breakout scenarios.

EUR/USD Weekly Price Chart

USD/JPY

Given the reaction on Friday after the NFP report, it still feels like USD/JPY is commanding the drive across the USD-complex.

The initial reaction to the abysmal headline NFP number was a bearish move in DXY, which allowed for that test below the 200-day moving average. That also sent EUR/USD for a test above the 1.0900 handle. But – that suddenly stopped and shifted, and that seemed to be around the time that USD/JPY began to bounce from a major spot on the chart of 151.95.

USD/JPY Four-Hour Price Chart

Further meshing that relationship, as the USD bullish trend came alive at the Q4 open we can see a massive breakout developing in USD/JPY. This would seem to fly in the face of fundamental expectations with the Fed still expected to cut through the end of next year, which would further compress carry rate differentials that initially drove the pair from a 2021-low of below 103.00 up to this year’s high almost 6,000 pips higher.

And as USD dug into resistance a week prior, USD/JPY began to stall. While JPY is only 13.6% of the DXY quote, it still looks to me that dynamics in the pair which retain some hangover of the carry trade that was so pronounced have continued to push both DXY and EUR/USD.

Nonetheless, price action is objective and at this point we’ve seen a rather vigorous defense of a major point on the chart, as it was 151.95 that set the highs in Q4 each of the past two years. So, I have to bias this as bullish until bears can force some element of change.

I’m still tracking resistance at 153.40 after which the 155.00 spot provides a bit of confluence for resistance above current prices.

USDJPY AD

USD/JPY Daily Price Chart

USD/CAD

If looking for USD-weakness, I’m partial towards USD/CAD. I had looked at this in the Thursday article and for a natural cross like USD/CAD where a considerable amount of cross-border trade exists, major psychological levels can tend to show as key inflection points.

For the past couple of years that’s been the 1.4000 spot in USD/CAD, which has not been taken-out despite a few different drives from bulls. The 2022 high came in just 22.3 pips inside of that level and last year’s high held right at 1.3900.

This year bulls were able to budge a bit above last year’s high but not quite to the 2022 high, with bulls showing trepidation in both episodes. The 1.3947 high that was set in August of this year was in-play again last week and bulls once again shied away.

If we do see the USD pose a larger pullback and trade below the 200-day moving average, I like the idea of range continuation in the broader USD/CAD backdrop. As of this writing, buyers are pressing for a break, so the 1.4000 level looms large overhead and signs of weakness can open the door to reversal potential.

USD/CAD Weekly Price Chart

--- written by James Stanley, Senior Strategist