US Dollar Price Action Settings: EUR/USD, GBP/USD, USD/CAD, USD/JPY

Talking points about the US dollar:

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It’s Fed week and the US dollar is still in focus after last week’s CPI report. Perhaps the most controversial part of this report was the first gain in core CPI in months, which dashed some lingering hopes that inflation, and thus FOMC optimism, may have already peaked. The Fed remains hawkish because inflation remains high, and in the words of former FOMC Vice Chair Richard Clarida, the Fed is one mandate operation at this point with inflation firmly in the crosshairs.

Now, with that being said, the Fed is not the only central bank taking a hawkish approach. The European Central Bank recently rose by 75 basis points and the Bank of England continues to talk about raising interest rates as well. The Bank of Japan is one of the few banks not adopting a tighter monetary policy, and the yen remained the preferred funding currency for carry trades as US interest rates continued to rise. Perhaps the Fed has a unique ability to rally further as the growth outlook is not as dire as what is seen across Europe, and this helped against the backdrop of significant strength in the US Dollar as many advanced currencies tumbled near several decades. its lowest level.

U.S. dollar

The US dollar made a strong jump from support last week after the CPI report on Tuesday. The price jumped back to the psychological level of 110 that held the highs until Friday’s trading, after which a quick attempt to break found resistance at the same level of 110.24 that held the highs of the previous week.

This sets up a potential double top that will remain as a probability until the top is taken out, thus invalidating the potential formation. In the short term, the bulls have retained control and the possibility of a breakout remains open. The potential for higher and lower support is around the previous resistance, taken from the long-term Fibonacci level at 109.14 all the way to the July swing high around the 109.27 level.

US dollar four-hour price chart

Chart created by James Stanley; USD, DXY on TradingView

US dollar in the short term

In the short term, the ascending triangle is now being called into question as the price fell below the uptrend line connecting last week’s swing low and last night’s swing low. This can keep the door open for short-term regression issues. There is a short-term spot of support around the 109.50 level, but the bigger picture, is the same area of ​​interest at 109.14-109.27 which is largely looming.

30 minute chart in USD


Chart created by James Stanley; USD, DXY on TradingView

Larger image in US dollars

From the daily chart we can see that DXY is having a tough time above the 110.00 level. This is a big psychological level and while we had one daily close above this price there has been quite a bit of continuation and as of late, buyers have not been able to drive a permanent move above the big number. Even the inflation data released last week – while sparking a massive move, the bulls were unable to beat the 110 handle.

Therefore, this does not necessarily mean that the trend is over or over capped; But this does mean that it will likely need some additional motivation and that may have some relationship with the EUR/USD which I will look at below.

In the US dollar, with resistance holding at a key point, this keeps the door open for pullbacks heading into the FOMC. And if the Fed continues to ratchet up its hawkishness, this could be the impetus that the bulls need to finally rally above the 110 level – after which the potential could become both higher and lower support.

To nullify the bullish idea – breaking the uptrend line will open that door. I have this drop around a previous support level turned into resistance around 106.81.

US dollar daily chart


Chart created by James Stanley; USD, DXY on TradingView


The Euro is still in a tough spot but that’s not real news at this point. The single currency has been taking constant blows from the US dollar as evidenced by the fifteen-month downtrend at this point.

Perhaps most worrisome, even with the ECB turning more hawkish, the EUR/USD hasn’t done much in response – just swinging around the same parity handle that’s been in play for two months now. And as I’ve warned several times, a level of this nature should take some time to break down. In 2002, when the EUR/USD was on its way to a rally as the euro was gaining global acceptance, it took EUR/USD about six months to leave parity.

For this latest iteration – parity started to emerge again in July and the selling has moderated, albeit slightly. There was building a falling wedge formation as the bears showed their fear of parity. This keeps the door open to the possibility of a pullback, especially if the Fed is able to maneuver a pessimistic offer of an overly hawkish message.

Also interesting – while last week’s CPI criticized the EUR/USD pair again below the big number, note what happened next – as the support building appeared around the 0.950 level. From the weekly chart, this amounts to a high – a potential low after a higher rally before the CPI release.

EUR/USD daily chart


Chart created by James Stanley; EURUSD on Tradingview

British Pounds / US Dollars

Sterling was cornered last week, putting the GBP/USD pair into a bearish engulfing along with a 37-year low. There is a significant amount of support remaining playing out of the previous swing low from March 2020, which is around the 1.1414 level. This could keep the door open for a bounce move up to short term resistance, such as 1.1500 or 1.1560; And if buyers can put in a little more extension, there is also a possibility of resistance at 1.1600 and then 1.1700 at psychological levels.

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British Pound to US Dollar (GBP/USD) Weekly Price Chart


Chart created by James Stanley; GBPUSD on Tradingview

US dollar / Canadian dollar

The USD/CAD pair broke a 22-month high this morning, testing the 50% retracement of the major 2020-2021 move for the first time since setting the low last year. There has already been some drift from this level with the upper wick exposed, and in the short term, there is a potential for support around a previous swing high resistance, taken from the 1.3224 level. Should a deeper pullback emerge, the same 1.3000 area of ​​resistance-turned-support remains as a point of interest for the longer-term approach.

USD/CAD Weekly Price Chart


Chart created by James Stanley; USDCAD on Tradingview

US dollar / Japanese yen

USD/JPY is zigzagging in a range after failing to resist last week. Psychological level 145 pips track remains above current price action as this price is yet to trade despite two close calls. Despite rampant speculation, there is no sign yet of any changes in the BoJ, but we will hear more about that later this week when the BoJ meets to decide on an interest rate, later on Wednesday (Thursday morning in Asia). ).

In USD/JPY, interest rate hike topics could remain particularly attractive given the potential for carry trades to continue. There is a support potential around the psychological level 142.50 and below, 141.60 is shown in the image. However, in the event of a break there could be some interest in the longer term as that would highlight a double top formation of the two failed rallies at the 145.00 psychological level, so 141.60 is big for USD/JPY trend topics.

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Four-Hour USD/JPY Price Chart


Chart created by James Stanley; USDJPY on Tradingview

— Written by James Stanley, Chief Strategist, and Head of DailyFX Education

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