US Dollar Post-CPI: EUR/USD, GBP/USD, USD/CAD

US Dollar Talking Points:

• This morning brought the release of CPI numbers for the month of July, and both headline and core printed below expectations.
• This below-expectation print led to an initial move of USD-weakness, but that was brief, as USD bulls showed up at 101.80 support and took over from there. At this point, the daily bar for DXY is green after that early-morning turmoil around the inflation print.
• 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.

This morning’s US CPI print would appear to be what Dollar bears were hoping for, but the market reaction at this point does not agree with that…

Both headline and core CPI printed below expectations, with the latter continuing to drawdown while the former showed its first increase in over a year. Markets were looking for a 3.3% headline CPI print to go along with a 4.8% core CPI print. The actual data came out softer on both counts with a 3.2% headline CPI read and a 4.7% core CPI print. And the initial reaction was USD weakness, for a bout 1.5 minutes, as support showed on the 8:32 AM one minute bar and that’s held as the low of the day.

US Dollar - DXY 5-Minute Price Chart (indicative only, not available on Forex.com platforms)

Chart prepared by James Stanley; data derived from Tradingview

Taking a step back, we can see that the area on the chart that elicited the reversal is a key spot of support, spanning the 101.80-102 area that I’ve been talking about of late. I had highlighted this ahead of this week’s open, and then I had harped on this area in the webinar on Tuesday.

This is a major spot of support for USD bulls to hold and since that’s now happened, it puts the focus on the upper trendline that’s been of issue for much of 2023 trade.

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

Chart prepared by James Stanley; data derived from Tradingview

USD Longer-Term

From the daily chart below, we can see the USD working on a hammer formation, which is often approached with a bullish aim. The logic driven by an early-session push from bears, which faces rebuttal after a support response from bulls.

The pathway isn’t home free, however, as the formation has flung price into a familiar area of resistance that, so far, hasn’t been able to give way. I’m tracking this around the 102.75 level but there’s also the bearish trendline sitting overhead, which has held multiple resistance responses in the USD so far this year. Most recently, that trendline evoked a harsh reversal in July trade that led to a fresh yearly low. Perhaps coincidentally, it was the CPI print last month that really helped to drive that breakdown; but sellers were unable to continue the move and bulls have taken over.

Can they continue to take over? The big test will be that zone of resistance sitting overhead, and if bulls can finally break through that trendline with a daily close, that would also highlight a break of a falling wedge formation. This would highlight follow-through resistance potential at 103.54 and 103.82, after which the 105.00 level enters the equation.

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

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD Rejection above 1.1000

First things first, the EUR/USD weekly chart continues to test a big spot of support, and that’s been in the picture for the past couple of weeks. This is notable because it’s also a factor in the continued hold inside of resistance in the USD above, so if the USD breakout is going to take place beyond that trendline and out of that falling wedge, it’s likely going to need to show some element of support slipping at 1.0943 in EUR/USD.

EUR/USD Weekly Price Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

EUR/USD Shorter-Term

EUR/USD had built a falling wedge formation as that support was coming into play over the past couple of weeks, and this led to a topside break that helped to push price back above 1.1000 this morning, with another quick rush higher around the release of US CPI.

But bulls were unable to continue the move beyond for long beyond the 1.1058 resistance and price has since erased almost the entirety of the prior bounce.

The daily bar in EUR/USD is currently showing as a gravestone doji, and this sets the table for another support test at the vaulted Fibonacci level of 1.0943.

EUR/USD Daily Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

GBP/USD

Cable is nearing the daily close near a massive level of importance. This is the 1.2667 price that was the yearly high when it showed as resistance in May, and after a pullback to the bullish trendline on the below chart, bulls took the pair up for a fresh yearly high.

Resistance held around the 1.3150 spot, however, and that’s since led to a series of lower-lows and lower-highs. The 1.2667 level came into play last week while helping to build a bounce, but GBP/USD bulls haven’t been able to do much above the 1.2800 handle.

The daily bar below is showing as an outside day, which puts focus on a deeper bearish move. The next spot of support is the prior swing low around 1.2591, after which the 1.2547 level comes into the picture.

GBP/USD Daily Price Chart

Chart prepared by James Stanley, GBP/USD on Tradingview

USD/CAD

While the US Dollar turn-around is attractive for bulls on the basis of the hammer on the daily chart, you’ll probably notice that the body on this USD/CAD daily bar is a bit thicker, owed to the addition of CAD-weakness into the mix.

I had written about the pair yesterday, highlighting the pullback from the 1.3500 level with support attempting to hold around the 1.3400 handle. That zone bent but didn’t break on the daily bar, and this illustrates a strong response from bulls. This keeps the focus on topside trend continuation potential as bulls have shown a strong response to that support test from this morning.

The next resistance on the chart remains the same 1.3500 level that held on Tuesday, followed by the Fibonacci level at 1.3652 which has shown multiple inflections already this year.

USD/CAD Daily Price Chart

Chart prepared by James Stanley, USD/CAD on Tradingview

--- written by James Stanley, Senior Strategist