US Dollar Price Action Setups: EUR/USD, USD/JPY, GBP/USD, USD/CAD

US Dollar Talking Points:

• USD strength remained a key theme through FX markets last week but the question now is one of pullback potential.
• EUR/USD has been in meltdown mode but after setting a fresh low after the weekly open, the pair held higher-lows thereafter, illustrating a move that’s a bit long-in-the-tooth.

USD strength continued through last week and at this point, the currency remains overbought on the daily chart and there’s no sign yet that bulls are ready to relent. But – there was a slowing at highs which led to a pattern of lower-highs, and this is something of note as we go into next week.

At this stage, a lack of positives doesn’t automatically mean a negative, it’s just a deductive observation. But, if looking on the long side of the USD it does mean caution should be exercised because of how stretched that move already is.

With the Monday high that held through the rest of the week, we also have an early-stage illustration of RSI divergence, where RSI posted a lower-high even as price set a higher-high. This is the kind of thing that can eventually lead into a reversal, but as I said in a tweet earlier in the week, it’s as if the market is waiting for a reason or some degree of motive to begin the move.

Perhaps next week’s CPI report on Wednesday is what delivers that?

US Dollar Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD

The Euro has been in meltdown mode and at this point it mirrors that backdrop in USD quite well. This is a change of pace from the previous read where USD/JPY seemed to be driving USD-strength as the big picture carry trade very much remained in force. But, since the dual intervention in late-July, it’s been the Euro meltdown that’s been the more decisive driver of USD-strength.

In EUR/USD, the pair remains in oversold territory on the daily, and there was a similar indication of higher-lows via RSI to go along with lower-lows in price. And after a splash on the weekly open, the pair posted higher-lows into the end of the week.

Again, this is deductive and diminishing negatives doesn’t automatically spell a positive, but it can be an early first step.

EUR/USD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

GBP/USD

If looking for USD-weakness, I think GBP/USD is set up more attractively at this point. While EUR/USD set a fresh low just after the weekly open, GBP/USD held above the prior week low, and from the weekly chart, we can see another item of indecision which, again, diverges quite nicely from the EUR/USD sell-off over the past couple of weeks.

From the weekly chart below, a clean range shows price still very near support, which again highlights that bullish case for those looking at ways to take on bearish USD exposure.

GBP/USD Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY

For USD-strength, I think USD/JPY is still a more compelling option, with the caveat that upside seems to have a theoretical cap after the dual intervention from both the US and Japan. So that makes the 164 a troubling area and possibly even 160, but pullbacks have continued to catch bids from buyers and that’s something that can keep the door open for a push up to the 159.00 handle, until something changes.

For support structure, it’s still the 156.68-157.22 zone that has been well defended, and then last week saw a higher-low develop at 157.50 which illustrates a degree of bullish anticipation.

USD/JPY Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/CAD

Also compelling on the long side of the USD is USD/CAD.

The pair had a strong streak during the DXY rally and that began to cool earlier last week. But, a Friday breakout and print of a frehs high at the 1.4300 level highlights a case of divergence, as the pair was able to set a fresh high while DXY was not. That illustrates the addition of CAD-weakness and as we go into next week, there’s been a consistent range on a short-term basis that offers support at either the mid-line, around 1.4250, or range support, just above the 1.4200 handle.

USD/CAD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro