US Dollar Jumpstarts into Q4, EUR/USD Snaps Back: USD Price Action Setups

US Dollar, EUR/USD, USD/JPY, Gold Talking Points:

• The US Dollar set a fresh yearly low to finish last week but a very different tone has shown so far this week, and at this point, the USD has broken out of a falling wedge formation that’s built over the past month.
• In late-August, USD went oversold on the weekly chart and I started talking about the matter, highlighting the fact that this was the first time that’s happened in more than six years. Turns can take time and coming into yesterday, all we had was the deduction that sellers were stalled and continuously failing to drive bearish trends on tests of fresh lows. But now we have a strong bid in the currency at the Q4 open.
• I’ll be going over these setups in the weekly webinar, held each Tuesday at 11am ET: Click here for registration information.

It’s been a fast start to Q4 for the US Dollar and really, it was around this week’s open that strength began to play-out.

The currency went oversold on the weekly chart in late-October for the first time in more than six years. In that prior instance, it took about three months for the DXY to turn bullish. Going oversold isn’t an assurance of a bullish turn, to be sure, but as we saw last month, there was the steady build of stalling from sellers on tests of fresh lows. This happened at the FOMC rate decision and despite the bank going more-dovish with a 50 bp cut, USD simply bounced from a fresh yearly low shortly after that announcement. A strong bounce followed after that.

And then last week, on Friday, another fresh yearly showed but, once again, sellers got shy, buyers showed up and a bounce ensued. This continued stall from sellers on tests of fresh lows helped to build a falling wedge formation, often approached with aim of bullish reversal.

The resistance side of that formation came into play yesterday on the final day of Q3 trade. And this morning buyers made a statement with a strong breakout out of that formation. As covered in the webinar, DXY has already pushed up for a test of the 101.27 level, leading to support potential around 100.74 or perhaps even around the 101 level in DXY.

US Dollar Daily Price Chart

USD Shorter-Term Levels

This is a new move and a fresh breakout; chasing can be a challenge and the prospect of traps remain. This highlights higher-low support potential for pullback scenarios around the prior swing high of 100.92 that could be tracked up to 100.98/101. Below that, a prior zone of support runs around the 100.75 level.

US Dollar Four-Hour Price Chart

EUR/USD Snapback

As I’ve discussed quite a bit over the past month, EUR/USD seems over-valued to me. I think the USD-weakness that was rather profound in the first two months of Q3 was driven in-large by unwind in USD/JPY, which helped to buoy EUR/USD as we saw extreme USD-weakness.

EUR/USD, in turn, hit the 1.1200 level in late-August and wasn’t able to do much above in the month after.

There was last week’s test of a long-term resistance level at 1.1212 which I went over in the webinar and that’s so far helped to mark the high. And as a comparison, I showed during the session how GBP/USD was finding support at its prior August swing-high while EUR/USD was unable to breach above, further highlighting that deductive Euro weakness compared to other currency pairs such as GBP/USD or AUD/USD.

At this point, EUR/USD can remain as one of the more attractive venues for USD-strength scenarios, and there’s lower-high resistance potential around 1.1081 which would be aggressive, followed by 1.1122, 1.1140 and then 1.1175.

For next levels lower, the 1.1000 handle is huge as this was defended ahead of the ECB’s rate cut a few weeks ago which led to that return to 1.1200. And below that is a longer-term Fibonacci level at 1.0943. If we can see a closed body break through that price on the daily, the prospect of longer-term mean reversion will look more attractive in the pair.

GBP/USD

In the webinar I looked at a support zone in GBP/USD and I’m currently writing this a couple hours later, so it’s worth an updated look in the article. The support zone in question is around the 1.3250 level and as of the webinar price was testing the top of that zone, at 1.3267. As I shared there, all we had was a small bounce, so this wasn’t yet confirmed as support. Price has since sunk deeper into that zone to test 1.3250 so the same can be said at this point. But – for those looking for USD-weakness to continue, this could make for a more attractive venue than what was looked at above in EUR/USD.

For price levels, there’s deeper support at 1.3102 and 1.3161, the latter of which was in-play a couple weeks ago to set higher-lows. And for resistance, there’s a zone of interest from 1.3328-1.3341.

GBP/USD Four-Hour Price Chart

AUD/USD

Given recent strength, AUD/USD may be even more attractive than GBP/USD for USD-weakness scenarios. The same support that had started to come into play at the time of the webinar is still in the picture. This is at the December 2023 swing high of .6871. The .6905 level lurks overhead, and the .6824 Fibonacci level is below, which is the 23.6% retracement of the 2011-2020 major move. Given that this was in-play a week ago before bullish continuation took-hold, I would want to see buyers defend the swing low of .6418 to keep the door open for topside trend continuation.

AUD/USD Four-Hour Price Chart

USD/JPY

USD/JPY is still a wild card, in my opinion. The longer-term and fundamental backdrop retain a bearish lean given the rate divergence scenario in USD/JPY. But shorter-term technicals do not match that and, instead, continue to show a bullish lean. At this point USD/JPY is holding above the resistance side of a falling wedge formation. The 145.00 level remains huge and if bulls can spark another test above that, the door is open for further continuation, perhaps even to the 147.94 Fibonacci level.

Longer-term, it’s the 150-151.95 zone that looms large. That was a big deal for a long time and if buyers can force a stretch all the way up there, I think longer-term carry traders can be incentivized to take profits. But there remains a lot of tape from where we’re at and that potential scenario.

USD/JPY Four-Hour Price Chart

Gold

Something big seems to still be going on in Gold. I would be very cautious of getting bearish here, even if there remain overbought readings on both the monthly and weekly chart. Pullbacks have continued to show as shallow so I’d try to be more patient and look for support tests for bullish continuation scenarios.

We’ve had another of those to start this week, with sellers pushing down for a test of the 2634.89 level. Notably there were no closed body breaks on the four-hour chart and price has tilted-higher again, now testing the underside of a prior bullish trendline.

There’s another recent push point of geopolitical tension which adds to the monetary loosening argument. At this point there’s short-term higher-low support potential at the 2650 level; and longer-term it’s the 2600 level that I would like to see re-tested for bigger picture bullish themes in gold.

Gold Four-Hour Price Chart

--- written by James Stanley, Senior Strategist