US Dollar, EUR/USD, GBP/USD, USD/CAD, AUD/USD Talking Points:
- The US Dollar remains in a range very near the 2021 highs after what’s been a climactic week.
- The US Dollar is the ‘cleanest shirt in the dirty laundry’ from a fundamental perspective, which can keep the focus on the long side of the currency. But, as shared ahead of this week, a number of major pairs sit at important inflection points and those levels will need to give way if USD bulls are going to push up to a fresh high.
- The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
The week is closing after a massive outlay of drivers and themes. And while volatility has remained in equities, the US Dollar remains in the same range that was in-play to start the week.
As I had discussed ahead of this week’s open, the question of whether or not the USD could punch up to a new high would likely be determined by counterparts from across the Atlantic. Major FX pairs of EUR/USD and GBP/USD had both run into significant spots of support on the chart. And while the ECB remained dovish EUR/USD has so far held above that major inflection point, and this is a big factor into USD price action as the Euro constitutes more than 57% of the DXY composition.
The US Dollar
In a week in which the Fed warned of a possible 5-6 rate hikes over the next two years, the US Dollar sure has been calm. I think this is largely due to the mixed messages that were sent during the press conference when Chair Powell said that the bank wouldn’t look to lift rate policy until greater evidence of ‘full employment’ had shown.
This puts a very subjective twist on to an otherwise objective matter of looking at how aggressively the bank might look to lift rates. At this point, price action in the US Dollar remains very near the yearly high, holding the range that’s remained in-play for all of December so far.
US Dollar Weekly Price Chart
Chart prepared by James Stanley; USD, DXY on Tradingview
On the above chart, you’ll notice a red box around the 94.50 level. This was a spot of prior resistance in mid-Q4 that, as yet, hasn’t been tested for support.
If a downdraft does develop in the USD in Q1, this becomes an area of interest for longer-term support. It could, in essence, help the USD to retain a bullish appeal even after that pullback.
But, going down to a shorter-term chart shows that recent range holding very well, so pullback scenarios do not appear to be on the cards at this point. Perhaps more importantly, from a fundamental side, the US Dollar appears to have re-taken the title of ‘the cleanest shirt in the dirty laundry,’ as the FOMC is one of the few Central Banks expecting to move into a hiking cycle at some point in next year or so.
US Dollar Four-Hour Price Chart
Chart prepared by James Stanley; USD, DXY on Tradingview
The big spot of support in EUR/USD is the zone running from 1.1187-1.1212, each of which are Fibonacci levels taken from longer-term charts.
This zone first came back into play in late-November, and like the USD scenario above, this has led to a continued range with prices holding inside of support and resistance around 1.1375. If a pullback develops, there’s another area of potential resistance running from 1.1448-1.1500. On the under-side of price action, the next major support level after the current zone is the 1.1000 psychological level.
EUR/USD Daily Price Chart
Chart prepared by James Stanley; EURUSD on Tradingview
The BoE posed a rate hike this week and that led to a quick flicker of GBP strength. As I had shared coming into this week, GBP/USD was sitting at a massive support level with a number of levels in tight proximity.
The hike out of the BoE helped prices to jump from support, testing resistance at 1.3354 before pulling back. There’s now higher-low support potential around the 1.3250 psychological level. If that can’t hold, the 1.3167-1.3188 zone comes back into play, and this can re-open the door to breakdown scenarios in the pair after this week’s flicker of strength.
GBP/USD Daily Price Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
AUD/USD Resistance Check
AUD/USD fell through the bottom of a bear flag setup in mid-November. The bearish run there was impressive, as there was very minor pullbacks along the way, until the .7000 psychological level came into play. I warned of this in early-December as an oversold currency pair met a major level of long-term interest, and that’s since led to a bounce.
The question at this point is one of sustainability. There’s a case to be made for possible higher low support should buyers be able to hold the low above the .7090 swing-low. But, resistance is fairly clear as taken from the .7220 area on the chart, and this is confluent with the 38.2% Fibonacci retracement taken from that short-side run.
AUD/USD Daily Price Chart
Chart prepared by James Stanley; AUDUSD on Tradingview
USD/CAD Back to the Big Level
It was an volatile two-week outlay for USD/CAD. The pair dipped ahead of last week’s Bank of Canada rate decision, eventually finding support in a significant spot with longer-term interest, the same 1.2622-1.2672 zone that I’ve been following for much of the year.
That support hit led to a strong bounce up to a fresh three-month-high, but after the FOMC rate decision that move pulled back aggressively. But bulls got right back into the saddle and have again forced price up to the same 1.2850 level that’s been in-play for the past few weeks.
This helps the pair to retain topside breakout potential, and the next major level ahead is the 1.2950 swing high after which the 1.3000 psychological level comes into play. This is a massively important level for USD/CAD and it hasn’t yet been in-play in 2021 despite being a significant sticking point during 2020 trade.
USD/CAD Daily Price Chart
Chart prepared by James Stanley; USDCAD on Tradingview
— Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX