US Dollar Price Outlook:
US Dollar Reversal Continues
The US Dollar reversal has continued through another day and the entirety of the Labor Day breakout has been entirely erased. The USD caught a significant bid to close out last week amidst a low-liquidity backdrop ahead of the long weekend in the US. That theme of strength continued through the Sunday open, even showing a small gap in DXY; and buyers continued to push through the Monday holiday. But since US traders have returned to their desks, a bit of reckoning has taken place as the entirety of that Friday-Monday ramp has been erased. Yesterday saw the Greenback’s descent pause in a zone of prior resistance; but that could merely slow down the move as sellers went back on the attack earlier this morning to push down to another fresh low.
Tomorrow brings Non-Farm Payrolls out of the US and this theme will be on center-stage; and this is in front of a rather important economic calendar for the next two weeks as next week’s ECB leads into the following week’s FOMC rate decision. Both banks are expected to loosen policy: The bigger question is by how much, and what else they might have in store for later in the year.
On the US Dollar – the next notable area of support runs from 97.86-97.94, followed by the prior yearly high at 97.70.
US Dollar Two-Hour Price Chart
EUR/USD Morning Star Continues
On a similar note, the EUR/USD put in a vicious move ahead of the long weekend, finally dropping below the 1.1000 handle after posturing around 1.1100 for the better part of the past six months. Sellers retained control through this week’s open but, similar to the above in USD, the Tuesday pivot turned into Wednesday drive, and the pair built in a morning star formation that has, thus far, continued-higher.
While the ECB is expected to nudge rates lower next week, the bigger question is whether QE may be around-the-corner or, perhaps even deeper rate cuts. There’s been a lot of innuendo floating around this theme of recent and the most updated comments from ECB members appear to be leaning away from QE, at least for now. That could entail further EURUSD gains as a 10 basis point rate cut ahead of the FOMC’s 25 basis point rate cut the week after may not be enough to move the needle much.
EUR/USD Four-Hour Price Chart
GBP/USD Rallies to Fresh Monthly High
GBP/USD has put in a stern rally so far this week, gaining almost 400 pips from the earlier-week low. While there are a number of fundamental justifications being discussed behind this premise, with a portion of that strength being owed to USD weakness, technical traders would likely point to the longer-term setup as a reason for such a dramatic shift in price action.
GBP/USD rode an aggressive downtrend into the month of August, eventually intersecting with a long-term trend-line. That helped August price action close as a doji, and sellers took a swing after the September open but were soon thwarted as the US Dollar began to reverse.
GBP/USD Monthly Price Chart
USD/CAD Reversal Continues to Show
It’s been a big week for CAD-strength, aided by yesterday’s BoC rate decision. The pair tested a big area of resistance earlier this week that runs from 1.3361-1.3385, and as USD-weakness came into play, price action began to turn. That turn hastened through yesterday’s Central Bank meeting, and USD/CAD is now testing the 1.3200 level as near-term support.
This can open the door for resistance plays around the prior support level of 1.3250, with targets directed towards deeper supports around 1.3132 and 1.3065. If both of those can get taken-out anytime soon, then a 1.3000 revisit may finally be in the cards.
USD/CAD 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
DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.
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