FX Price Action Setups as the U.S. Dollar Dips Deeper into Prior Resistance

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In yesterday’s article, we looked at the U.S. Dollar starting to test a prior zone of resistance after a quick bounce off of the 94.30 area. This zone had held the highs in the U.S. Dollar for three months this year; but after the ECB rate decision in late-October, the Dollar caught a bid to finally break-above. That strength has held for much of the two-and-a-half weeks since that rate decision, with higher-low support showing around 94.44. But as we warned last week, the longer that this support was tested the more likely a down-side break, and after opening this week with a quick bounce off of 94.30, prices have dipped deeper into the zone towards 94.00.

U.S. Dollar via ‘DXY’ Hourly: Pullback Dips into Zone of Prior Resistance

Chart prepared by James Stanley

The big question at this point is if bulls are going to show back-up anytime soon. As we’ve been discussing, given the veracity of the bearish move that took place in the first nine months of this year, a bullish reversal in the U.S. Dollar may take some time to solidify. This exposes prior swing-lows for bullish strategies, and the levels around 93.48 and 93.06 become usable for the aim of trading top-side continuation in the U.S. Dollar. If prices break-below 92.75, then the prior zone of confluent support from 91.17-91.36 is exposed for short-side targets as fresh lows would appear considerably more likely.

U.S. Dollar via ‘DXY’ Four-Hour: Break-Below 92.75 Eradicates Bullish Theme, Bearish Focus to 91.36

Chart prepared by James Stanley

Also discussed yesterday was the zone of prior support in EUR/USD that had shown a couple of different instances of resistance. This zone runs from 1.1685-1.1736, and after sellers had shown up around 1.1685 on two different occasions, the prospect of a deeper resistance test began to appear more likely. The big move in EUR/USD happened around the October ECB rate decision, and this saw the pair drop from around 1.1837 all the way down to 1.1553 a couple of weeks later. But after setting that fresh low last week, buyers have showed up to push prices higher, and we’re currently trading through the top end of that zone of prior support. This exposes a group of swing-highs on the chart that showed ahead of ECB. These run from that 1.1837 level up to 1.1880, and as long as prices remain below this zone, the potential for bearish continuation remains. If we do break above this zone, a re-test of 1.2000 would appear likely, so this could be an idea area for stop placement/strategy reversal.

EUR/USD Four-Hour: Break-Above Prior Support Zone, Prior Resistance Remains 1.1837-1.1880

Chart prepared by James Stanley

The British Pound, meanwhile, continues in its rather choppy, congested manner. The daily chart of GBP/USD hasn’t had much for trends since well-before the BoE rate hike earlier in November. After that rate hike, prices made a bee-line to catch support on a bullish trend-line projection, and prices have continued to work around that level for the past week and a half. We’ve been looking for a concerted break of this slop before looking to assign a trend-side direction, and on the bearish side of the pair that’s the area that runs from 1.2982-1.3026.

GBP/USD Daily: Choppy, But Still Respecting 2017 Bullish Trend-Line

Chart prepared by James Stanley

NZD/USD

The Kiwi-Dollar has been really bearish of late, and this is being driven by a couple of different themes out of New Zealand. Jacinda Ardern won the PM spot for the country in early-August, and the currency has been on a landslide since then, dropping from above .7500 down to the .68’s. A few weeks ago, prices finally found some element of support right around the prior 2017 low, and this produced a double-bottom formation with a support level around .6820. This exposes the pair for a down-side break, and if we do see .6820 taken-out, the door is opened for short-side strategies targeting prior support levels around .6750, .6675, .6608 and then .6500.

NZD/USD Daily: Double Bottom Around 2017 Lows

Chart prepared by James Stanley

AUD/USD

Over the past few weeks, we’ve been following the short-side of AUD/USD as a way to trade USD-strength. While the Euro was exciting, that excitement could lead to additional volatility, making the prospect of trading two turns at once (in both Euro and USD) a rather complicated manner. Looking for USD-strength against the Aussie, at the very least, removed that Euro volatility from the equation, and since we looked at that Analyst Pick, AUD/USD has continued the down-side move, and we added to the position last week in another Analyst Pick.

Yesterday brought another encouraging development as prices finally broke below the 50% Fibonacci retracement of the 2017 bullish move. This level had previously helped to hold the lows, but yesterday’s bearish bar drove prices below for the first daily close through this support level.

AUD/USD Daily: Daily Close Below 50% Retracement of 2017 Bullish Move

Chart prepared by James Stanley

On the hourly chart below, we’re getting a bit closer with the move to focus-in on this recent support break. Prices are in the process of tilting-higher, but sellers are showing-up around the same Fibonacci level looked at above. We’ve added three points of resistance for traders looking at short-side continuation approaches.

AUD/USD Hourly: Sellers Re-Entering Around Prior Support

Chart prepared by James Stanley

USD/CAD

Surprisingly, USD/CAD was one of the most profound trends of 2017, at least so far. When the Bank of Canada started talking up rate hikes earlier in the summer, this caught quite a few by surprise. This led to two rate hikes from the BoC, in July and then in September; but after that second rate hike, something changed. The BoC started to get more passive and dovish while the Fed continued to talk up the prospect of a December hike along with their expectation for three more rate rises in 2018. In short order, that bearish trend had become a bullish theme, and a trend-channel began to show just a couple of days after that September rate hike.

USD/CAD Four-Hour: Bullish Channel Forms After BoC’s September Rate Hike

Chart prepared by James Stanley

More recently, as in over the past few days, that prior down-trend has begun to show again. This has led to a key support test around 1.2672, as this is the 38.2% retracement of the 2011-2015 major move, and this level had showed confluence with the support side of that bullish trend-channel. If we do finally take-out that level, the prospect of deeper losses and a return of that bearish trend will look considerably more attractive. On the chart below, we’ve added three support levels below this confluent zone, each of which can function as profit targets for a down-side continuation approach.

USD/CAD Hourly: Bounce Off Confluent Support Exposes Potential for Down-Side Break

Chart prepared by James Stanley

USD/JPY

The big focus around USD/JPY appears to revolve around the longer-term setup. While we’ve been seeing some shake in the Dollar of recent, USD/JPY appears to be at least somewhat unmoved by these themes. Longer-term, USD/JPY has been holding around a confluent zone of resistance for a few weeks now. The level around 114.03 is the 23.6% Fibonacci retracement, and this area has held the highs in the pair since May. But more recently – this area has intersected with a down-ward sloping trend-line that makes up the longer-term symmetrical wedge pattern, and USD/JPY has continued to narrow deeper into this pattern.

USD/JPY Daily: Symmetrical Wedge with Prices Testing Resistance

Chart prepared by James Stanley

If we do finally see resolution of this wedge, the next move could be super-charged as USD/JPY finally exhibits some element of trend after a year that’s seen considerable congestion. And while this may seem logical to expect such an instance on the topside as we continue to test around resistance, traders should avoid ruling out another bearish run as driven by tensions around North Korea, tax policy, etc.

If we do finally get a break of the 115.00 psychological level, a series of interesting top-side targets open up. We’ve included a few of those below on the way up to the 2017 high around 118.67. If we do take out the 2017 high, a run towards 120.00 appears likely shortly after that takes place, as little would be standing in the way of a bullish continuation run.

USD/JPY Daily: Bullish Break Exposes Targets Towards 120.00 Psychological Level

Chart prepared by James Stanley

— Written by James Stanley, Strategist for DailyFX.com

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