Pre-FOMC US Dollar Price Action Setups
The role of the Federal Reserve has adapted quite a bit in the past 30 years and it seems that we’re at the forefront of even more adaptation as President Trump looks to mold the bank more to his liking, saying earlier today that rate cuts will be a key ‘litmus test’ for choosing the next Fed chair. While Trump hasn’t made a formal announcement, it’s highly expected to be current Director of the National Economic Council Kevin Hassett, who has history as an uber-dove. And Hassett had a series of comments earlier this morning that all point in a dovish direction.
But before we get there Jerome Powell remains at the helm and so far this year, even with the Fed cutting 50 bps and 150 bps since last September, there’s been a generally bullish response in the USD to FOMC meetings, at least in the immediate aftermath. And more importantly, since the Fed started cutting rates in September, buyers have been in-charge until the strong zone of resistance around the 100-handle in DXY stymied the advance.
US Dollar Weekly Price Chart
Chart prepared by James Stanley; data derived from Tradingview
Euro Remains the Key for FX Market Trends
At this point there’s still higher-highs and lows on shorter-term charts but bulls still have yet to make a significant mark on the EUR/USD pair. I’m looking to the major pair as a key determinant for USD direction, although I’m still focusing directional Dollar plays elsewhere such as GBP/USD or USD/JPY.
In EUR/USD, support at the 1.1593-1.1600 zone is key and if sellers can push below that, the breakout test last week starts to look like a failure, USD strength would be on the verge of taking over, and this would then point to another test at the 100-handle in DXY.
In that scenario, however, I still think I’d prefer USD/JPY for USD-strength scenarios as I’ll look at below.
EUR/USD Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
GBP/USD
While the rally in EUR/USD has been unconvincing, the structure has been cleaner in GBP/USD, and this stands in stark contrast to what we looked at in the webinar in early-November.
I wrote about the pair yesterday with updated levels and so far, the 1.3287 price has come in as support, and there’s additional structure a bit lower, around 1.3250 and 1.3186.
GBP/USD Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
USD/JPY Bulls Go Back to Work
USD/JPY had a clean pullback, held support at prior resistance, building a falling wedge along the way, and has since broken out in the prior trend side direction. For USD-strength, this remains the venue that I find most attractive and like I looked at yesterday, that JPY-weakness theme can be focused elsewhere, as well, for those that would like to avoid the USD altogether.
USD/JPY Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Market Analyst, Global Macro
