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US Dollar at Support Ahead of FOMC
The next few days bring a series of drivers that help to produce a backdrop of heightened volatility across FX markets, and as we looked at earlier this morning, both the US Dollar and EUR/USD are testing key areas of support. Tomorrow brings a Federal Reserve rate decision with a strong probability of a hike; and then the following day brings an ECB rate decision in which many market participants are looking for some element of clarification for how exactly the European Central Bank might look to start tapering QE purchases. Not to be lost in the shuffle, a UK inflation report is set to be released tomorrow morning ahead of that FOMC rate decision, and this has very much been a push-point for the British Pound of recent.
Bullish EUR/USD After Bull Pennant Shows with Support at Prior Resistance
As we wrote this morning, EUR/USD has budged back-above a key area of support. The zone that runs from 1.1685-1.1736 is comprised of two long-term Fibonacci levels, and this area helped to hold support on numerous occasions in EUR/USD in the latter-third of last year. When prices in EUR/USD were selling off in May, this area acted as a mere speed bump; but after prices found support above 1.1500 two weeks ago, buyers were able to push prices back-above this key area on the chart.
On a shorter-term basis, price action has built into a wedge formation which, when taken with the prior topside move, makes for a bull pennant. This opens the door for topside setups, and traders can look at stops below the 1.1700 figure. This would open the door for initial targets at the 1.1900-handle, at which point stops can be adjusted to break-even. After that, traders can look for secondary targets at either 1.1950 or 1.2000, depending on how optimistic they are for a return of Euro-strength as we head towards the ECB rate decision on Thursday morning.
EUR/USD Hourly Chart: Bull Pennant, Support at Prior Resistance
Chart prepared by James Stanley
Bullish USD/JPY After Fresh June Highs
USD/JPY is trading at a fresh June high, and this comes after another support test at the Fibonacci level residing at 109.19 last week. After FOMC and ECB rate decisions, we have the BoJ on tap; and the door appears to be wide-open for the bank to take a dovish few to markets. Inflation in Japan lags behind the rest of the world, and while the ECB has opened the door to stimulus-taper discussions, it appears as though that same prospect is far-off for the Bank of Japan.
This could be looked at as a continuation setup, looking for price to continue the recent pattern of higher-highs and higher-lows. Stops can be investigated below the 109.19 Fibonacci level, with initial targets just inside of the prior May high around 111.40. Stops can go to break-even at that first target, at which point a bullish breakout towards fresh 2018 highs becomes attractive, and that can target the area around 112.33.
USD/JPY Two-Hour Chart: Higher-Highs, Higher-Lows Open Door for Bullish Continuation
Chart prepared by James Stanley
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.
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