US Dollar Talking Points:]
- The US dollar retreated from a recent 19-year high reached last Thursday.
- EUR/USD is above one and the focus is squarely on the ECB for tomorrow’s decision – and it could be the USD trend ahead of next week’s FOMC decision.
- The analysis is based on the article’s price action and chart structure. To learn more about price actions or chart patterns, check out our DailyFX Education section
- Quarterly forecasts were recently released on DailyFX and I have written a technical section on the US Dollar to be announced. For the full article, click the link below.
The US dollar was revalued after last week’s jump as a 19-year-old freshman. As I wrote last Thursday, this was taking over the EUR/USD theme. After the major pair ended last week, buyers were able to stop the decline and on Thursday morning there was a break below the EUR/USD major.
This week, European inflation returned to print more than 8% (8.6%, to be exact) and headline inflation was printed at 3.7% in the same last month. So far, the ECB is still sitting at negative levels, which doesn’t make much sense with the growth rate observed in the eurozone.
And this problem has the potential to create more problems, as the fall of the euro causes even higher inflation, as products imported into the euro zone are comparatively more expensive. At some point, the ECB will need to strengthen or the US will cool down, because as long as this divergence firm and the dollar pulls money from Europe to keep those new rates higher, the European economy remains at risk. The location and implications of this currency will likely be seen in the coming months. Also, efforts to stop the ECB, especially when we see that 8% inflation is faced with 25 points in the rate hike.
This brings us to the latest factor that helped the USD and EUR/USD regain momentum, and this is creating expectations for a 50bp rally in tomorrow’s decision. In fact, it has become a way for Central Banks to pressure their counterparties to raise rates, as we saw the Bank of Canada move 100bps earlier this month after the first H 75bp in over 25 years.
The big question is: does 50 bp indicate that the ECB is ready to deal with inflation? Will banks remain complacent and passive because tomorrow’s gap is ‘unique’ or will it continue to be the start of a slow and methodical escalation cycle? If the ECB can be confident that it is ready for inflation to continue to raise rates the day after tomorrow, then the upside of EUR/USD may hold for a little while, although that has to wait for the FOMC’s decision. after one week
The US Dollar retreated for three straight days, helped by the EUR/USD finally finding support with a pullback in the pair. air quality. And that support shows in an interesting place, at the 38.2% Fibonacci retracement of the 1985-2008 big move, measured at 106.61. And the upper support area, taken from the previous resistance, is arranged around 105.52-105.79.
Two-hour price table US Dollar
USD Long Term
Also below the monthly chart highlights the Fibonacci retracement which produced a low at the current support level of 106.61.
Production price table in US dollars
EUR/USD saw a slight rally ahead of tomorrow’s ECB rate, and this happened even as yesterday’s print inflation remained at an all-time high. The move here appears to be a combination of short coverage ahead of tomorrow’s rate decision and what may be the only legitimate reading, from traders looking to play another defensive theme.
At this point, EUR/USD is sticking to the levels we saw on Thursday, showing resistance at the 1.0235 area and breaking through the resistance support at around 1.0192.
Another area of resistance is a little higher on the chart and is around the previous low of 1.0340. This is 1.0357-1.0387 and at this point there could be good potential for lower resistance. If this is not delayed, if buyers can move forward after tomorrow’s rate decision, another interest-bearing area is around 1.0609-1.0640.
EUR/USD two-hour price chart
GBP to USD
When I looked at the USD pair last Thursday, I saw that GBP/USD has formed a bearish theme, mostly in the form of a descending wedge that has formed.
This falling wedge filled and prices rushed into the next resistance area, which is believed to be close to previous support in the 1.2000-1.2021 area. But as the buyers couldn’t cover much ground, resistance continued in this area. The next retrograde finds support at 1.1968, which I examined yesterday.
Here, the Resistance may remain vulnerable and if the bulls can set up a retest there is a potential breakout to focus on the nearest resistance around 1.2090.
GBP/USD Two-Hour Price List
The RBA has adopted a hawkish tone and is helping to bring the Australian back to life. AUD/USD has been on the downside so far this week, similarly coming out of a wedge formation. Such formations are usually followed by bullish reversal targets and, until then, continue to fill the AUD/USD.
To continue with this topic, it is necessary to see high-low support, and there is an area of previous short-period resistance at .6850 that remains of interest in that direction.
AUD/USD four-hour chart
USD/CAD breakout delayed
Last week was USD/CAD. The Bank of Canada surprisingly raised rates by 100 basis points, which brought fast bidding in CAD and a lower leg in USD/CAD.
But two bases were found at 1.2950 and the next day the USD spiked as the EUR/USD moved lower and allowed for a big move in USD/CAD that ushered in the new year. Since then, the pair has exhausted all of its tops and others, with prices remaining at the weekly low, trying to hold support above the 1.2850 level.
For next resistance – look for previous support at around 1.2933-1.2950. For support, a break of 1.2815 opens the door for a move to 1.2750.