Talking Points on the US Dollar Price Outlook:
- the US dollar opened the week weak, testing the two-year low set in mid-August.
- Just below USD price action is another potentially key area of support.
- Can USD bears arrange an escape? And if so, for how long could they reach new lows? The main driver of this week’s economic calendar appears to be Friday with non-farm wages; but last week’s comments from FOMC in Jackson Hole may continue to attract in today’s US session.
- Fundamentals are back in the spotlight with the Fedand NFP carrying some weight for this week. Learn more about each in the fundamental analysis section of our DailyFX Education Section.
US dollar bears make an effort to start the week
US dollar bears are making an effort to start this week as a large area of support lurks under US dollar price action. Last week ended with USD weakness through Friday, helped by comments from FOMC Chairman Jerome Powell to kick off the Jackson Hole Economic Symposium.
Last week produced what could end up being a big change at the world’s largest central bank, with the Fed now prioritizing the jobs side of its dual tenure. Powell said the bank would now aim for “average inflation” of 2%, which means the FOMC might be more open to inflation overruns in the future if the situation arises. It also shows how the Fed can stay on low rates even longer, as they are somewhat less tied to rate hikes if inflation exceeds that 2% threshold.
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The announcement helped erase the greenback’s gains earlier in the week, with the USD pushing straight back to a key point of support that had held lows since mid-August. This takes place around 92.15-92.50; and just below is another potentially troubling area of bear support that we’ll look at a bit later.
US dollar daily price chart
Take a step back on the chart and this area 92 on DXY seems to be potentially problematic for bears and that may be a reason for building support just above that level. Point 92 on the DXY chart has two different Fibonacci interest levels combined with a trendline projection that can be found by taking the currency’s 2011 and 2014 swing lows.
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US dollar monthly price chart
Graphic prepared by James stanley; USD, DXY on Tradingview
Can American bears muster the force?
This creates a difficult context for the USD bears – because even though / when sellers can test the current set of lows around 92.15, there may be another larger support element just below.
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This is the type of scenario that will often require motivation from the trend side to enable this breach, and looking at this week’s economic calendarthe obvious one that jumps out is Friday’s non-farm payroll report. Another problem is also one of the counterparts – if the USD is going to collapse, which currencies will absorb this lost strength? Can EUR / USD to cross a psychological level vaulted to 1.2000?
— Written by James stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX