US Dollar Technical Analysis: EUR/USD, GBP/USD, USD/CAD, Gold

US Dollar Talking Points:

• It’s been a week of indecision in the USD as the weekly bar is currently working on a spinning top formation.
• Monday was a bearish outing for the USD but support soon showed at the Fibonacci level of 105.39 on Tuesday morning, which led to a strong topside push into Thursday trade. But at that point, DXY began to stall at resistance and then fell on Friday morning to erase a portion of that prior gain.
• Next week is massive for the USD, with both the FOMC rate decision on Wednesday and Non-farm Payrolls on Friday.

It was a busy week across global markets but for the US Dollar, the weekly bar is nearing the close with some indecision showing.

It wasn’t like that all week, though, as the Greenback started with a sell-off on Monday, which soon brought in Fibonacci support at 105.39. That’s the 38.2% retracement of the pullback that began last Q4, and it’s related to the same Fibonacci setup that helped to set the current 2023 high in DXY earlier in October at 107.18.

That support led to a sizable and consistent bounce on Tuesday and Wednesday that drove into the ECB rate decision on Thursday. Along the way, price action broke above a falling wedge formation, with a quick extension up to the resistance I spoke about in the Tuesday webinar at 106.67-106.79. Bulls tried to breakthrough on both Thursday and Friday and were thwarted each time, which has led to pullback. And in a related matter that we’ll look at a little lower, EUR/USD held support above the 1.0500 handle, indicating that both the USD bullish trend and the EUR/USD bearish may still be over-crowded.

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

US Dollar Bigger Picture

The USD bullish run from this summer was historic in nature, as we had 11 consecutive weekly gains which is something that hasn’t happened in a decade. The fact that bears haven’t been able to evoke a deeper pullback yet is also somewhat bullish, as such a one-sided trend should generally see some element of profit taking from bulls that have been riding the trend for an extended period of time.

But, at this point we’ve seen a mere 23.6% pullback of that move, and the sell-off didn’t get much further below that spot this week before buyers returned to the equation and pushed price right back up and through the resistance side of a falling wedge pattern.

Falling wedges are often approached with aim of bullish reversal and in this case, it could be suggesting continuation potential in the bigger picture USD bullish trend. The next spot of resistance overhead is the same that stalled the advance earlier in October, which is also the 50% mark of the same major move from which the 38.2% level helped to set this week’s low.

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

USD Weekly Chart

I wanted to include a weekly here because I think this does a good job of illustrating the stall that we’ve seen over the past month. Generally speaking, a strong trend such as we saw through the summer in USD will be met with some element of pullback, as those that were buying on the way up might want to take profits; and then as the trend begins to pullback that can then enthuse others to take profit which can lead to more supply given current demand.

At some point, when price pulls back enough that the market seems a relative value, bulls can return, and this is where the higher-low will show that can lead to bullish continuation. And if they don’t show up? Well then, we may see continued reversal of the prior move.

In the USD at this point the pullback from that massive bullish run has been very mild, and price has adhered well so far to the Fibonacci retracement taken from last year’s pullback move. This keeps an open door for bulls next week; but if they do begin to falter, and that 23.6% Fibonacci retracement is taken out, there’s additional context for support around the 105.00 psychological handle.

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

EUR/USD

The Euro is 57.6% of the DXY quote, so that stall in the USD bullish trend has some relationship with the Euro and EUR/USD.

And as we’ve seen the bullish move in DXY consolidate over the past few weeks there’s been a similar dynamic in EUR/USD. It’s the 1.0500 level that’s been problematic for bears. It started to come into the picture a month ago while helping to set the September swing low.

Bears weren’t quick to finish, either, as they went for a breakdown the next week, but selling pressure suddenly slowed and price snapped back above the big figure with only a single daily close-below. That week saw another impulsive move with bears testing below 1.0500, but that merely led to a higher-low at 1.0488 and the next week produced another higher-low right at the 1.0500 handle. Since then, we haven’t been back there.

Sellers had a full head of steam yesterday into and after the ECB and they even pushed an intra-day break of the bear flag formation. But like prior support tests, bears could not hold the move and price has snapped back into the bullish channel. From the below daily chart, it can be difficult to muster anything other than a bearish prognostication and that potential certainly does exist going into next week, but traders need to remain cautious of that big figure of support as those levels can stall moves for an extended period. When the parity level came into play last year, it stalled the sell-off in the pair for more than two months before sellers could finally leave it behind.

As we go into next week, 1.0500 and then 1.0448 remain key for bears:  If they can take that out then there’s deeper support potential around the 1.0350 and 1.0200 levels in the pair.

EUR/USD Daily Chart

GBP/USD

Cable has some similarity to the above setup in EUR/USD, with price having set a fresh low on October 4^th, and this week’s trade showing a higher-low above that. In GBP/USD, that higher-low has so far shown right at the 38.2% Fibonacci retracement of the bullish move that began last year, plotted at 1.2073.

One of the big differences between EUR/USD and GBP/USD at the moment is proximity to key psychological levels. While the battle in EUR/USD has already begun at 1.0500, GBP/USD hasn’t yet tested the 1.2000 level, which makes for interesting reversal potential if bears can stretch down to a fresh low next week. This would, of course, need to be met with some element of stall or support indication at that level but given the context, that remains an item of interest into next week.

GBP/USD Weekly Price Chart

USD/CAD

The Bank of Canada hosted a rate decision this week, and that led to a strong breakout in USD/CAD as the pair punched up to a fresh yearly high.

At this point, USD/CAD is holding in a resistance zone that’s been in the equation for the past three years, as a spot of prior support from 2020 that runs between 1.3850 and 1.3900 has been in the picture twice to elicit strong reversals in the market. The first was a year ago and the second took place in March, just ahead of the regional banking crisis in the US. Beyond that, the 1.4000 level remains a massive spot as it hasn’t traded in more than three years on the pair, and if the breakout does extend up to that level it could fast become hindrance for continuation scenarios.

USD/CAD Weekly Price Chart

Gold Goes Over $2k

Gold had spent the first four days of this week consolidating and then on Friday, began to push another topside breakout to allow for a push above the $2k psychological level. Ahead of that move, price action had built an ascending triangle atop the trend, suggesting a bull pennant was in-play.

But now that the yellow metal has the $2k handle, the big question is whether bulls can drive further ahead. Given that the move showed on a Friday, this could be some pricing-in of geopolitical tension before the weekly close and given the state of a fresh breakout there’s little evidence to suggest that the bullish move is finished.

Price being above the $2k handle does, however, make for a difficult prospect for those not already long, and this is generally how psychological levels can show as support or resistance. Gaining acceptance from buyers above the $2k handle will be essential to trend continuation and at this point it looks as though we’ll have to wait for early next week to see any possible support responses above or near the psychological level.

Gold Eight-Hour Chart

--- written by James Stanley, Senior Strategist