StoneX Self-Directed Analyst Article

The US Dollar has continued with higher-highs and higher-lows since the bank’s last meeting which was also the start of the current rate cut cycle. And while the Fed is widely-expected to cut again tomorrow, and then again in December, the USD has held up fairly well, all factors considered. That’s been somewhat of a theme even going back to last year’s rate cuts, but the big question now is whether Jerome Powell sounds more dovish than usual given the opacity over US data from the government shutdown. This obscures the picture a bit as the Friday Core PCE release is expected to be missed and this makes the Fed’s job of managing rates a more difficult prospect. Would this cause the bank to err more on the side of caution?

USD

From a price action perspective there’s still a bullish case to be made for the Greenback and for that to remain alive Powell’s press conference will be closely watched. The USD is currently holding a familiar spot of support, the same ‘s2’ zone looked at in the webinar two weeks ago, and just below there’s the unfilled gap from earlier in October. That’s what I’m looking to as an invalidation zone for bullish USD scenarios, with resistance at 99.40 and 100-100.22 overhead.

US Dollar Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

FOMC - ECB

There’s an ECB meeting a day later and this may end up having more impact on the USD than the Fed meeting. Despite those dovish expectations around the FOMC this year, there’s been a general theme of USD strength showing around FOMC meetings. Below, I’ve highlighted the past few meetings, including the September 17^th meeting that saw the Fed kick off a rate cut cycle. The USD set a low there and then started to rally as Jerome Powell framed the move as a ‘risk management rate cut,’ and in the July meeting, Powell didn’t sound convinced that rate cuts were needed, saying that policy didn’t seem overly restrictive.

It was the ECB meeting in September, just a week ahead of the FOMC meeting, when Christine Lagarde began to sound more optimistic, saying ‘the disinflationary process is over’ for the Eurozone, and that sparked a rally in the Euro that ran all the way into that FOMC meeting.

The ECB announces the morning after the FOMC meeting, and this keeps EUR/USD as a point of interest for Dollar-trends.

US Dollar at FOMC Meetings since March – Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD

The bearish structure that’s built since the Fed’s rate cut is still in-place, but more recently, there’s been a greater push from bulls. In the webinar two weeks ago I looked at a double bottom formation and that filled in quickly after. And then last week, prices had started to slide lower and it was the neckline from that prior formation that I drew attention to, and that’s shown as support so far this morning.

This can change given the economic calendar ahead but the Euro’s performance, which is linked to Lagarde’s performance, will likely have a large sway on both the USD and EUR/USD.

For EUR/USD, it’s the 1.1748 level that still looms large as that Fibonacci level defined a lower-high with five consecutive days of resistance. Bulls forcing a closed-body break back-above that price would indicate a shifting backdrop to re-open the door for bullish trends.

EUR/USD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY

I wrote about USD/JPY yesterday and Yen-weakness remains a viable theme. There’s a Bank of Japan rate meeting just after the Fed and this keeps both sides of the pair in focus. As looked at in the video yesterday, there’s matched highs in USD/JPY but it’s still too early to consider this as a double top. If we see a plunge in the pair around this week’s Central Bank meetings, that can become a viable scenario, but until then, this is a push up to eight-month highs that has so far held an area of possible higher-low support.

USD/JPY Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

GBP/USD

On the topic of double tops and double bottoms, we have a big test going on in Cable at the moment. GBP/USD has plunged down to the 1.3250 level that has so far held. That’s a matched low and like the above in the mirror image with USD/JPY, it’s too early to call this a double bottom just yet. But, given recent price action there’s a few different areas of interest to look for lower-highs until the reversal scenario becomes more attractive.

GBP/USD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/CAD

In last week’s webinar I started to shift away from USD-strength scenarios on USD/CAD. The large reason for that was the build of a bearish reversal formation and a week later that’s continued to play out, with a fresh lower-low showing in USD/CAD today, along with the pair gaining acceptance from sellers below the 1.4000 level.

USD/CAD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist