US Dollar Price Action Setups

US Dollar Talking Points:

• The US Dollar remains in the consolidation that’s been in-play for all of 2023 trade, with price testing the 102 level in DXY last week which is the 50% mark of the 2021-2022 major move.
• EUR/USD bulls showed a large response to last week’s ECB rate decision, with price pushing up to the 1.0943 Fibonacci level for resistance. While that level has held since last Thursday, bears haven’t yet made much of the opportunity. This week sees attention move towards the UK with inflation to be released on Wednesday and the Bank of England on Thursday. And Chair Powell will be testifying in-front of Congress on Wednesday and Thursday as part of the Fed’s twice-annual Humphrey Hawkins testimony.
• I’ll be discussing these themes in-depth in the weekly webinar on Tuesday at 1PM ET. It’s free for all to register: Click here to register.

Last week produced a bearish move in the USD, but that seemed largely driven by the European Central Bank rate decision on Thursday. While there was a net bearish reaction to the Fed, DXY held support at the 103 handle but the morning after bears drove down to fresh near-term lows after the ECB meeting. Prices in DXY eventually ran down to 102 on Friday, which has held the lows thus far while producing a bounce in the currency.

From the daily chart below, there’s still a recent lower-low which helps to retain near-term bearish potential. The 103 level is relevant as a push above this price would be a strong showing from bulls, while bringing the 103.45 level back into the picture. Above that, the bearish trendline that held the highs in late-May and early-June comes back in the picture, and this is confluent with another resistance level at 130.82 over the next couple of days.

US Dollar - DXY Daily Price Chart (indicative only, not available on Forex.com platforms)

USD Longer-Term

Taking a step back on the chart highlights that consolidation that’s been coursing for the past 7-8 months. And there’s both a bullish and bearish scenario here, as discussed in the webinar.

The bearish scenario would be a descending triangle formation that remains in-play after the resistance hold at the trendline. Sellers would need to breach support at 100.87 and 101 to trigger that formation, which is often approached with aim of bearish breakouts.

On the bullish side of the matter, the same double bottom that I looked at a few months ago remains a possibility. This would require a breach of the neckline at 105.88 to trigger. Double bottoms are often approached as bullish reversal formations, so this puts even more emphasis on that support around 100.87/101 as a breach of that not only triggers the descending triangle, but also nullifies the double bottom formation.

US Dollar - DXY Weekly Price Chart (indicative only, not available on Forex.com platforms)

EUR/USD

It’s been a slow-moving bullish theme in EUR/USD of late. The pair found support in late-May and the first portion of June saw quite a bit of back-and-forth action. Even around last week’s open, bulls appeared sluggish, although there was a continued show of defense above 1.0690.

Bulls started to push on Tuesday after the US CPI release, but it was Wednesday around the FOMC rate decision that EUR/USD bulls started to press a bit more. The European Central Bank rate decision on Thursday added additional drive and EUR/USD jumped right up to the 1.0943 level, which is the 50% mark derived from the Fibonacci retracement drawn from the 2021 high down to the 2022 low.

At this point, that resistance has helped to stall the move – but, notably, bears aren’t making much ground yet and, if anything, bulls are showing a response to the 1.0900 level so far in the early-portion of this week.

This highlights more resistance sitting overhead as the 1.1000-1.1100 zone has been a stumbling block for Euro bulls twice already this year. For next support, I’m tracking a zone of prior short-term resistance, from around 1.0843-1.0864.

EUR/USD Daily Price Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

GBP/USD

In last week’s webinar, I noted that for scenarios of USD-weakness, GBP/USD may have been one of the more compelling backdrops. And that led into a strong breakout to fresh yearly highs in the pair, with the next couple of days bringing the matter into the spotlight with tomorrow’s release of UK inflation and Thursday’s Bank of England rate decision.

In GBP/USD, prices have started this week with a pullback and, notably, the same resistance level that was in-place for breakouts last week hasn’t shown much for support yet. This would be an area for bulls to show just how motivated they are should it come back into the picture. There’s deeper support at 1.2584 but, as I shared in the webinar, a hold there wouldn’t have the same appeal as a hold at 1.2667, and it may even open the door for shorter-term bearish themes depending on how it prices in.

GBP/USD Weekly Price Chart

USD/JPY

Not to get lost in the shuffle, there was also a Bank of Japan rate decision last week. The net response was Yen-weakness in a number of areas which helped USD/JPY to bounce from 140 up to the 142 handle by the end of this week. And this week has brought another push up to another resistance level at 142.30, which was a swing-high in mid-November.

That has so far held the highs for today and the daily bar is now of interest as it’s currently showing as an outside bar, which is similar to an engulf but includes a complete cover of the prior day’s wicks. There’s also a possible evening star here, depending on how today’s candle closes.

This could open the door to possible reversal themes but, given the bullish trend, those pullbacks may be more operative for getting a read as to just how motivated bulls might remain to be. This brings higher-low support potential to both 140.30 and 140.92.

USD/JPY Daily Chart

--- written by James Stanley, Senior Strategist