How Forex Markets Might Respond to a Continuation of USD Strength

Talking Points:

– The U.S. Dollar is contrast three-month highs as bulls sojourn determined on a bid. Should this thesis continue to develop, a array of engaging possibilities are non-stop adult for a residue of this year.

– EUR/USD Sentiment stays towering during -1.84, and GBP/USD is on a other side of a Dollar during +1.19. Click here to entrance IG Client Sentiment.

– Looking for trade ideas? Check out a trade guides. And if you’re looking for something some-more interactive in nature, check out a DailyFX Webinars.

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In yesterday’s article, we looked during how a steadfastly bullish U.S. Dollar appears to be on a fork of a longer-term bullish run. And a connection that we now find ourselves during unequivocally usually highlights how unusual a year of 2017 has been. When we came into a year, a U.S. Dollar was surging while during 14-year highs, prodded by a ‘Trump Trade’ that was concurrently pushing both bond and batch markets higher. This is also when EUR/USD was a few hundred pips from parity, a turn that was called by many shops as a expectancy was for a Euro to usually keep creeping-lower as a ECB remained dovish and passive.

But a lot has altered given Jan 1st, as a U.S. Dollar went on to remove as many as -12.3% of a value while a Euro spent many of a initial 9 months of a year trending-higher. This thesis was unequivocally many being driven by a awaiting of a impulse exit or, during a unequivocally least, a finish from a ECB. On Oct 26th, we listened that a bank is fluctuating their QE module to Sep of subsequent year while also formulation to keep rates during benefaction levels for a foreseeable future. This effectively kicked a can on a awaiting of impulse exit from a ECB, and this nullifies one of a vital drivers to a Euro’s before bullish trend.

The vast doubt during this indicate is how low EUR/USD competence go? It’s widely approaching that a Fed is going to travel in Dec and a bank continues to contend that they’re looking during 3 some-more hikes for 2018. This is over a duration in that a ECB is formulation no such tweaks to financial policy, and this can furnish a backdrop that allows for a delay of USD-strength and Euro-weakness as those before trends come a bit some-more dismantled as we pierce towards a finish of a year.

U.S. Dollar around ‘DXY’ Daily: Nine-Month Down-Trend into Fresh Three-Month Highs

How Forex Markets Might Respond to a Continuation of USD Strength

Chart prepared by James Stanley

EUR/USD

As we mentioned earlier, a Euro has spent many of a year trending-higher underneath a expectancy that a ECB would tie process during some point. And a ECB, for a many part, has remained dovish and passive. Throughout a year, a bank has continued to contend that they weren’t nonetheless prepared to plead impulse exit. Markets, nonetheless, continued to price-in a awaiting of an contingent exit, or during a unequivocally slightest a taper. At unbroken meetings in April, June, Jul and August; ECB President Mario Draghi ceaselessly pronounced that a ECB hadn’t even discussed a thought of exiting from stimulus. When we finally got to October, and when a ECB announced that they were fluctuating their module out to Sep of subsequent year – that before thesis was nullified and debility has begun to uncover in a singular currency.

That bearish arrangement has continued to build in a week-and-a-half given a ECB. Friday saw cost movement in EUR/USD endorse a lower-high off a under-side of a pivotal support section that we’ve been following; and this morning has brought a uninformed three-month-low to a pair. This gives us an prolongation of lower-lows and lower-highs that can keep a doorway non-stop for short-side setups in a pair.

EUR/USD Daily: Shift post-ECB, Support Becomes Resistance Ahead of Fresh Three-Month Lows

How Forex Markets Might Respond to a Continuation of USD Strength

Chart prepared by James Stanley

The area of seductiveness in EUR/USD appears to revolve around a 1.1212 level. This is a feeder turn that had played a pivotal purpose in a EUR/USD operation that lasted for two-and-a-half years (from Jan of 2015 until Jul of this year). At 1.1212, we have a 61.8% retracement of a lifetime pierce in EUR/USD, holding a low from a year 2000 adult to a 2008 high; and during 1.1216 we have a 50% retracement of a 2017 bullish move. Meaning; prices can scold down to 1.1212 while still maintaining longer-term bullish intensity in EUR/USD; and for near-term short-side strategies, this could be an engaging final aim for a short-side setup.

EUR/USD Monthly: Confluence Around 1.1200, Will Old Resistance Become New LT Support?

How Forex Markets Might Respond to a Continuation of USD Strength

Chart prepared by James Stanley

Underneath stream cost movement yet above that 1.1200 area are a array of intensity supports that can be employed as short-side targets. We embody those on a next EUR/USD chart.

EUR/USD Eight-Hour: Down-Side Targets, Potential Support Towards 1.1200

How Forex Markets Might Respond to a Continuation of USD Strength

Chart prepared by James Stanley

USD/JPY

While a Euro has spent many of a year raging-higher, a Japanese Yen has been, for a many part, sincerely weak. A unequivocally diseased U.S. Dollar equivalent that Yen debility for a vast cube of this year, and during this point, USD/JPY continues to conflict during a area that has hold a pair’s gains for a past 6 months.

USD/JPY Daily: Prices Remain during Six-Month Range Resistance

How Forex Markets Might Respond to a Continuation of USD Strength

Chart prepared by James Stanley

This is not a usually component of insurgency that USD/JPY is now facing: We’re also during a top-end of a long-term exquisite crowd arrangement as we demeanour during on a weekly USD/JPY draft below:

USD/JPY Weekly: Confluent Resistance, Prices Testing Top-End of Symmetrical Wedge Pattern

How Forex Markets Might Respond to a Continuation of USD Strength

Chart prepared by James Stanley

If USD/JPY is means to finally break-through this months’ value of resistance, a 115.00 psychological turn is nearby, yet a mangle yet that area opens a doorway for a plea of a 2017 high around 118.50. If we’re means to take out that level, afterwards a psychological turn of 120.00 becomes engaging for top-side targets.

USD/JPY Weekly: 2017 High In-Focus for USD-Strength Scenarios

How Forex Markets Might Respond to a Continuation of USD Strength

Chart prepared by James Stanley

GBP/USD

Cable is a bit messier during a moment, as has been a box from even before a Bank of England’s dovish rate travel from final week. If we do see USD-strength feverishness adult as a theme, GBP/USD could mangle back-below a 1.3000 psychological turn on what could, potentially, be an extended run in a pair.

Similar to a ECB assembly from dual weeks ago, a Bank of England extinguished hopes for a longer-term change with rate environment policy. While a BoE had been articulate about final week’s rate travel given August, Mr. Carney has also pronounced that rate hikes will be light and slow, alluding to this pierce as a ‘one and done’ form of hike. This is mostly a reason that a British Pound has put-in debility given that tightening, and should a BoE sojourn dovish, as they have around a duration given Brexit even when hiking rates; this can make for a exposed backdrop in a British Pound as aloft rates get priced-in to a U.S. Dollar.

We looked into a technical setup around GBP/USD in yesterday’s essay entitled, The Cable Congestion Continues. Basically – cost movement in Cable is a disaster right now, with meant reversal being a name of a diversion over a past month, even when removing a rate travel from a BoE. This can make directional augury sincerely difficult during a moment, and traders looking to trade a directional pierce would expected wish to wait for a stream messy cost movement to solve before looking to allot a trending bias. On a weekly draft below, we’re looking during another exquisite crowd pattern; yet this time prices are contrast a support side of a setup.

GBP/USD Daily: Testing Support-Side of Symmetrical Wedge Pattern

How Forex Markets Might Respond to a Continuation of USD Strength

Chart prepared by James Stanley

Under a unfolding of USD-strength, this would be looking for a break-below a 1.3000 psychological turn to open a doorway to short-side positioning in a pair. And to take this a step further, there is a Fibonacci turn around 1.2982 that can be incorporated with a Oct swing-low to furnish a support section in a pair.

A mangle next this section opens a doorway for short-side strategies, and on a draft below, we’ve enclosed subordinated support points that can be engaging for down-side targets should this thesis continue to develop.

GBP/USD Four-Hour: Currently Messy, Subordinated Support Applied for USD-Strength Scenarios

How Forex Markets Might Respond to a Continuation of USD Strength

Chart prepared by James Stanley

— Written by James Stanley, Strategist for DailyFX.com

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