US Dollar, EUR/USD Talking Points:
- It’s been a directional month so far in both EUR/USD and the US Dollar. Those directional moves have had recent course corrections, however, leading to the potential for further twists and turns.
- The US Dollar has seen sellers come back to fade-out 50% of the November rally: Will USD bulls return or is the Greenback set for a redux of the October sell-off with the prospect of fresh lows?
- DailyFX Forecasts are published on a variety of markets such as Gold, the US Dollar or the Euro and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.
US Dollar Bounces Up to Key Resistance
The November rally in the US Dollar is on its back foot following the fall from last Friday that’s continued through Monday trade. This is a story of half-ways, however, as the October sell-off produced a rather large move; and early November price action saw a 50% retracement of that move. But with sellers re-entering the equation, 50% of that rally has now been faded-out of the market since the Dollar topped-out last Thursday, leaving the USD in a precarious spot on the chart.
Collectively, this places USD price action at the 23.6% retracement of the October sell-off, with resistance coming-in from a confluent zone that’s been looked at before and will be highlighted again in a following chart image.
US Dollar Four-Hour Price Chart: Mid-Way Through Q4, Net Weakness
Taking a step back to incorporate some additional technical items, and the current zone of resistance is not new. This is the same zone that came into play to hold the late-October highs before becoming support in early-November as USD price action was clawing back prior losses. This can help to keep a bearish bias in the Greenback, which could make pairs such as GBP/USD or perhaps even NZD/USD as attractive vehicles for trading USD-weakness.
US Dollar Eight-Hour Chart: USD Re-Tests Resistance Zone from Late-October Highs
EUR/USD Tests Key Resistance
For short-side stances in the US Dollar, a few pairs remain of particular interest. I had looked into both USD/CAD and GBP/USD yesterday, each of which offer some potential to go along with a continuation of USD-weakness.
In EUR/USD, however, an interesting backdrop has appeared. The pair pushed-lower in the first half of November to go along with that USD-strength. But last week saw the 1.1000 psychological level come back into play, at which point the proverbial music slowed in the sell-off and a bounce began to develop. EUR/USD price action is now testing a key resistance area on the chart which had previously provided a bit of support as prices were selling off earlier this month. This comes in at the 38.2% Fibonacci retracement of the June-October sell-off, and this is the same zone of prices that provided a support bounce in late-October trade.
And continuing with our theme of half-ways, this level is confluent with the 50% marker of the November sell-off.
EUR/USD Eight-Hour Price Chart
US Dollar, EUR/USD Strategy
For traders looking at a stronger bounce in the US Dollar, the prospect of selling EUR/USD off of the above confluent resistance can be an attractive scenario.
For USD-weakness, however, traders can look to topside breakout potential in EUR/USD, waiting on a push above yesterday’s high at 1.1090 to re-open the door to bullish breakout strategies.
EUR/USD Four-Hour Price Chart
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.
Forex Trading Resources
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If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.
— Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX