Talking Points on US Dollar Price Action:
- the US dollar has entered a short-term range so far in August, following an aggressively bearish exit in July.
- US dollar price action established a doji for trading last week, leaving the door open for near-term pullback / reversal themes. This can be a searched theme in EUR / USD.
- For the continuation short side of USD-weakness, GBP / USD may have some appeal as the pair has now tested support in the 1.3000-1.3018 area three times for support in August.
US dollar rolls up after big July outflow
We are not quite halfway into the third quarter, but it has already been a difficult exit for the US dollar. The currency entered the quarter retaining a formation linked to a range that had already been in play for a few weeks. But after pushing down to support in mid-July, buyers paused and the bottom fell out of price action as the US dollar fell, then fell and fell. Finally, the greenback found support around the 92.50 level on the last day of July. Since then, price action has shown more mean reversion with another test of that same support on Wednesday and Thursday of last week.
Four hour price chart in US dollars
Friday brought a quick pop in the USD, helped by the nonfarm payroll report. This strength continued to show early in this week, with the USD price action moving closer to the range resistance at 93.75-94.00; the first of those prices previously functioning as the lowest in two years until it was removed a few weeks ago.
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On the weekly chart below, notice how Doji from last week is tracking this earlier assist test. If this week presents a backdrop of strength, there might be some morning star formation to work with and for USD bulls this could be an element of excitement as this formation will often be addressed with the aim of reversals.
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This puts even more emphasis on the short-term resistance discussed above. For a morning star formation to come to life this week, short-term price action will need to cross this key resistance area; which would keep the door open to short-term strategies of strength around the US dollar.
US Dollar weekly price chart
Graphic prepared by James stanley; USD, DXY on Tradingview
EUR / USD finds resistance at long term trendline
The problem with trend lines is the subjectivity surrounding them. Which trend line is the right one? While there are multiple mechanisms that are supposed to offer some piece of the answer, the reality is that the most exploitable trend line is the one that works … and as long as that trend line or possible trend line does not enter. in play, there is really no way of knowing which one is “right”.
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EUR / USD monthly price chart
This is relevant on EUR/ USD because there is a trendline which I have seen pulled in a number of ways by a number of analysts. There is no definitive “right” here. But, if we link the swinging highs of 2008-2014, there is a recent element of relevance as the EUR / USD price action collided with this projection two weeks ago. Last week saw another exit of resistance respecting this level; and very similar to the mirror image of the US dollar above, there are two of the first three stages for an evening star formation. Such formations will often be approached for the purpose of bearish reversals, and given the synchronicity of the USD pattern above, this could be an operational area for USD bulls and EUR / USD bears to watch this week; looking for a hold of this resistance and prices to push back towards the 1.1700 and 1.1600 areas.
EUR / USD weekly price table
Graphic prepared by James stanley; EUR / USD on Tradingview
GBP / USD is trading in tighter band, holds place of 1.3000
After a very strong July, the trend GBP/ USD has cooled and a fair amount of average reversion has shown so far in August. One constant so far at the start of the month has been a support buy-in around the psychological level of 1.3000. But, at this point, GBP / USD bulls seemed very unwilling to retreat from the March high, perched at the 1.3200 level, and there were two separate pullbacks that developed before this test was tested. key resistance. Since the failed second attempt at 1.3200 produced a high, there is still potential for the bulls here, and this may keep the door open for themes from above, looking for a test of that swing. of 1.3200 that was not hit in five. month.
GBP / USD Daily Price Chart
— Written by James stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX