US Dollar Talking Points:
- US inflation remains hot and rate expectations are high for more hikes through next year.
- This has helped to keep the Dollar in a bullish spot and as looked at from the weekly chart, bulls have an open door to make a move here.
- USD/JPY remains central to the USD-strength theme and the fundamentals are decisively tilted to the long side of the pair.
US Dollar
The USD weekly chart is set up for breakout. Bears had an open door for the past four weeks to run a breakdown and they continually failed to push through, and following a strong reaction to the earlier CPI report on the morning, with the daily chart working on a bullish engulf, there’s now an open door for a breakout test with the 103.00 level looming large overhead.
US Dollar Weekly Price Chart
Chart prepared by James Stanley; data derived from Tradingview
USD/JPY
I covered this in the USD/JPY article yesterday but USD/JPY remains a key component of the Dollar strength theme, as it’s been the continued fundamental divergence between the two economies that’s helped to keep both markets bid. To this date, there’s still positive rollover on the long side of the pair and negative on the short side, so there’s a built-in incetivization for buyers to hold and punishment for bears. Thus this provides a bit of motive and while governments on both sides have tried to influence the pair lower, they haven’t been able to turn the tides of economic growth and that’s why the pair continues to flirt with breakouts.
The question at this point is whether buyers have the resolve to test the heavy hand of intervention. The dual intervention from July hit at the 164 level, obviously trying to defend a 165 test. Subsequently intervention threats showed after a test of 160 and that’s led to a lower-high at 159.
But even as I said back in July, given fundamentals, the pair remains attractive on pullbacks and that’s helped to produce a series of support hits and, more recently, higher-lows. The CPI report this morning only further reinforces that fundamental dilemma and the demographic quandary of Japan only exacerbates the problem.
Also of note, and spoken to at length in the latter part of the webinar, is the fact that a hard case of carry unwind threatens to create a massive global de-leveraging event, similar to what showed briefly back in July of 2024.
At this point, much like the USD above, the technical backdrop for USD/JPY is open for breakout potential.
USD/JPY Daily Price Chart
Chart prepared by James Stanley; data derived from Tradingview
USD/CAD
USD/CAD is another pair set up for USD-strength and there was a clean show of support around 1.3950 after five consecutive days of grind. Chasing at this point can prove problematic, particularly given the resistance test from prior support, but there’s now higher-low support potential around 1.4151 and then 1.4069-1.4078, after which the 1.4000 level comes back into the picture.
USD/CAD Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
GBP/USD
GBP/USD has been my bearish USD setup for a while now but given that rush of USD strength last week, combined with a failed test at the 1.3500 level, GBP/USD has folded back aggressively. As shown in the webinar, this feels like a falling knife, and a show of support would first be needed to get the idea that bullish resumption is attractive again. For that, I’m tracking a familiar zone of 1.3275-1.3300.
GBP/USD Daily Price Chart
Chart prepared by James Stanley; data derived from Tradingview
EUR/USD
EUR/USD just has not been able to hold a bid and last week saw yet another failure at the 1.1263/1.1275 area, and from the weekly below there’s a mirror image of the USD setup above, where there’s breakout potential following a month of digestion.
In EUR/USD, it’s the 1.1000 level below that looms large, with the 1.0943 Fibonacci level below that.
EUR/USD Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Market Analyst, Global Macro
