U.S. Dollar, EUR/USD Talking Points:
- EUR/USD and DXY have started Q2 with a bang, as each market stretched into oversold/overbought territory after trends drove through the quarterly open.
- The next FOMC rate decision is the week after next, and that’ll likely play a large role as the ECB seems closer to rate cuts that may start as early as June. The Fed is in blackout this week and Friday brings a major data point with the release of Core PCE data.
- I’ll be discussing these themes in-depth in the weekly webinar on Tuesday. It’s free for all to register: Click here to register.
It’s been a strong start to Q2 for the U.S. Dollar, and that comes along with a few notable items. In direct relation, that USD strength has helped to push EUR/USD down to range support in a mean-reverting backdrop that’s been in-place for more than 15 months now. But elsewhere there’s been a rush-higher in Treasury rates and that’s come along with an aggressive pullback in equities, such as I had looked at in the Q2 Forecast for stocks.
In the USD, price continued the run through last week’s open until finding resistance at 106.50, which is notable on its own as this is the bottom of a gap that remains unfilled, and that gap came into play after the November 1st rate decision from the FOMC at which the Fed sounded very dovish; coming in stark contrast to the balance they had shown up until that meeting.
Along side that resistance inflection, RSI on the daily chart of DXY had pushed into overbought territory before starting to ease as prices held that resistance in the latter-portion of the week.
U.S. Dollar Daily Price Chart
Chart prepared by James Stanley; data derived from Tradingview
EUR/USD Daily
The Euro is 57.6% of the DXY quote, so there can often be a mirror image-like dynamic between the two. And similar to the opposite of USD above, as the Dollar was pushing into overbought territory on the daily with a high set last Tuesday, EUR/USD was pushing into oversold territory from a low set on the same day.
There’s also support reference here, as it was the 1.0611 level that came into play last week. There was penetration below that price on Tuesday as EUR/USD tested the 1.0600 handle; but it was back in-play on Friday helping to set a slightly higher-low and this was happening as RSI was coming off of that oversold backdrop.
The prior instance of oversold RSI on the daily was last October, right around the time EUR/USD was setting its 2023 low before bouncing through much of Q4 trade. And the instance before that was around the 2022 low. It’s important to note here, however, not every RSI crossover will lead into bounce and that thickens the drama for our current scenario.
EUR/USD Daily Price Chart
Chart prepared by James Stanley, EUR/USD on Tradingview
USD Shorter-Term
In the USD, the pullback thus far has been rather mild, and there’s been a symmetrical distribution so far, setting up a symmetrical wedge that could be construed as a bull pennant given the prior trend. There’s confluent support potential from Fibonacci levels at 105.38-105.51, after which prior resistance comes into the picture at 104.77-105.00. Notably, that resistance held the highs twice before the breakout but, as yet, hasn’t been tested for support. That would be a key decision point for the bullish trend if it comes into play, but the big question is whether buyers will allow for that scenario this week.
U.S. Dollar Four-Hour Price Chart
Chart prepared by James Stanley; data derived from Tradingview
EUR/USD Shorter-Term
From the four-hour chart of EUR/USD we can get better view of that attempted higher-low. Such as we’ve seen symmetrical action in the USD since the high last Tuesday, there’s been a symmetrical wedge brewing in EUR/USD, as well. The lower-high last week at 1.0690 held below a more notable level at 1.0694, and that would be the price that bulls would need to take out to continue the sequencing of higher-high and higher-lows. Above that, there’s a possible spot of resistance from prior support at 1.0725, and above that is a swing at the psychological level of 1.0750. Above that is the prior swing low at 1.0792, and the 200-day moving average remains notable as well, as there hasn’t been any resistance tests there since the early-April breakdown; and that plots all the way around 1.0817 for today.
EUR/USD Four-Hour Price Chart
Chart prepared by James Stanley, EUR/USD on Tradingview
--- written by James Stanley, Senior Strategist
