USD Exhaustion into Bearish Engulf: EUR/USD, GBP/USD, USD/JPY
US Dollar Talking Points:
- It was a big week for US data and, initially, stronger-than-expected inflation led to a sizable ramp in the Greenback. But shortly after that CPI release prices began to pullback and that continued into the weekly close, allowing for the build of a bearish engulfing candlestick on the weekly chart.
- The 101.80 level continues to loom large in the DXY basket and, as usual, picking spots is important as USD-weakness showed well in GBP/USD while USD strength remains more attractive in USD/JPY and perhaps even USD/CAD. All are setups looked at in the Tuesday webinar and updated below.
When the fundamental backdrop diverges from price action, we have a possible turn, and that’s what the past week has been for the US Dollar. While inflation remains high in the US and the Fed is on track to hike rates again by the end of the year, the US Dollar sold off and put in a bearish engulfing candlestick on the weekly chart even despite strong CPI and PPI prints.
To be sure, there’s more to it as the Dollar came into the week overbought and showing signs of exhaustion, fueled by a stringent sell-off in the Euro. But, as we go into the next week the shadow of that bearish engulf remains prominent.
For levels, it’s the 101.80 level that stands out as support as the long-term Fibonacci level had previously held resistance back in June; and for the past two weeks that price has kept bears at bay.
US Dollar Weekly Price Chart
Chart prepared by James Stanley; data derived from Tradingview
EUR/USD
The big push point for the USD rally of late has been the continued sell-off in the Euro, with EUR/USD going oversold as DXY went overbought. And while the engulfing pattern of the above setup wasn’t quite mirrored in EUR/USD, there was a glimmer of hope that had started to show as the pair put in its first green week since the September open.
EUR/USD Weekly Chart
Chart prepared by James Stanley; data derived from Tradingview
EUR/USD Daily
The Euro is 57.6% of the DXY basket so there’s probably some intertwined fates between the two markets at this point, and while bulls did pullback in late-week trade which takes some of the shine off of the move, there is a case for capitulation, as looked at in the Tuesday webinar. The extended underside wick from the Wednesday candle led to a rally and fresh short-term higher-high, and this highlights the 1.1200 level as key support into early trade next week. And overhead, it’s the zone from 1.1275-1.1285 that looms large.
EUR/USD Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
GBP/USD
For USD-weakness, I still prefer GBP/USD and the weekly contrast below illustrates why. While EUR/USD printed an indecisive candle (albeit green) GBP/USD showed greater strength following two prior weeks of indecision.
And the low on Thursday printed at a huge spot – the 38.2% Fibonacci retracement of the 2025 rally, a level that had also caught support back in June.
The 23.6% retracement of that move is the next resistance level up, plotted at 1.3390 and, above that, I’m tracking a swing at 1.3451 and then the 1.3500 psychological level.
GBP/USD Weekly Price Chart
Chart prepared by James Stanley; data derived from Tradingview
USD/JPY
On the other hand, for USD-strength, I still prefer USD/JPY, which retains bullish structure on the daily chart even despite that bearish engulf in the DXY weekly.
This is a market that’s difficult to chase at fresh highs and we saw another example of bulls pulling back before a breakout as price re-approached the 159.00 level. The pullback, so far, has remained rather moderate as support hits can remain attractive especially given the still-positive carry on the long side of the pair.
For next week, I’m tracking supports at 157.50 and the 156.68-157.22 zone, and if we do see the USD sell-off deepen, the next look is for re-test of the familiar 155.00 zone.
USD/JPY Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Market Analyst, Global Macro
From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.
FOREX.com is a trading name of StoneX Financial Pty Ltd.
The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.
While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.
StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.
It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.
StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.
Delayed London Stock Exchange (LSE) Data
The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.
© FOREX.COM 2026