US Dollar Price Action Setups: EUR/USD, GBP/USD, USD/CAD, USD/JPY

US Dollar Talking Points:

• The US Dollar is bouncing from a Fibonacci support level to begin the week, helped along by a failed breakout in EUR/USD that showed up this morning.
• The FOMC is now in the blackout window ahead of the December rate decision and markets are expecting a 50 basis point hike v/s another 75 bp hike by an approximate 3-to-1 ratio. The bigger question, however is what market are pricing in for next year and how that’ll be addressed in the Fed’s projections at that rate decision.
• 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 US Dollar set its current high more than two months ago now, which was helped along by the collapse-like move in the British Pound in late-September. GBP makes up 11.9% of DXY, so with a move as extreme as what had shown in Cable through that episode, it similarly had impact on the US Dollar.

Initially, the USD held higher-low support, giving the appearance of bullish continuation potential; but that soon receded as a double top formation built in October that started to open the door to a deeper breakdown in November. Last month marked the largest monthly sell-off in the Greenback in more than a decade, even as the Fed laid the groundwork for more rate hikes and tighter policy as inflation remains elevated; US economic data, as highlighted again in this morning’s ISM report, continues to show resiliency.

That USD-weakness theme caught another leg-lower on Friday’s NFP report until support finally began to show around a Fibonacci level plotted at 104.38. This is the 23.6% retracement of the 2008-2022 major move and so far this morning, it’s helping to provoke a bounce.

US Dollar Monthly Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

USD Shorter-Term

Given how aggressively the Greenback sold off last month, caution is warranted on the bullish side of the USD. The 105.34 level remains relevant as this was a swing-low that produced two bounce before sellers could finally punch through last Thursday. If bulls can evoke a push above that price, the door may start to open for more with focus on the next resistance at 105.86. Beyond that, the next major resistance level is 107.10; but whether or not that comes into play will likely have something to do with EUR/USD.

US Dollar Daily Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

EUR/USD

EUR/USD tested the 1.0500 level last week and around the NFP release, it looked as though sellers were going to take a stand. The pair dropped by more than 100 pips around the release but soon found support around 1.0425 before finishing the day back-above the big figure. Something like that can be seen as a failure from sellers to walk through an open door, and deductively, this puts the focus back on upside.

And to that end, EUR/USD started this week with another breakout, pushing up to a fresh five-month-high while testing above a Fibonacci level at 1.0579. Price started to pull back after US markets came online and there was another push-lower around the NFP release, with price making another vising to the 1.0500 level.

At this point, this morning’s breakout has been false but similar to what was seen last Friday. Today’s daily close will be key as a push back below 1.0500 opens the door for a revisit to 1.0428 – and if sellers can push below that, then we’d have a fresh low to work with. But – until then, we’ve had a recent higher-high after a higher-low so the trend remains bullish until bears can make a larger mark.

EUR/USD Daily Chart

Chart prepared by James Stanley; EURUSD on Tradingview

GBP/USD

GBP/USD has now retraced 50% of the bearish move that started last May. Last week was the fourth consecutive weekly gain with 8 of the past 10 weeks being bullish for GBP/USD. Last week opened with bearish reversal potential in the pair and that even started to play out a bit in the early-portion of the week. But, a strong push on Wednesday led to a breakout on Thursday and at this point, there’s a V-shaped recovery showing in Cable.

Naturally there should be some concern of overbought conditions given how quickly the move has come back. So, we may see sellers making a push off of this resistance given how quickly price jumped last week, but the bigger question, again, similar to last week, is what happens at support? Are bulls still motivated enough to re-take control? Or, are we at a point where sellers might make that push even while at support, anticipating a reversal after a really strong two months of price action.

For near-term support, I’m tracking a swing level around 1.2217 after which another swing comes into the picture at 1.2156.

GBP/USD Weekly Chart

Chart prepared by James Stanley; GBPUSD on Tradingview

USD/CAD

The Canadian Dollar has been even weaker than the USD over the past few weeks, evidenced by the fact that despite those fresh lows in DXY looked at above, USD/CAD has continued to push higher in a bullish channel. I looked into this last week, highlighting setups in USD/CAD as well as CAD/JPY and EUR/CAD.

In USD/CAD, that bullish channel can be paired up with a bearish trend that started from the October 13th high, which syncs with the 2022 low in the S&P 500 and was right around the time that USD bears started to push down from the 20 year highs that were set a couple of weeks earlier.

This sets up a bear flag formation and this puts focus on resistance at the bearish trendline which projects to around 1.3565. If bulls can force a daily close above that level, the focus then shifts to the next spot of resistance at 1.3646 and the bear flag will begin to look as if it’s been negated.

USD/CAD Daily Chart

Chart prepared by James Stanley; USDCAD on Tradingview

USD/JPY

Last week I had highlighted breakdown potential in USD/JPY, after which the pair went on to fall by more than 400 pips before finding support around the 134.00 level. With USD strength showing up to start this week, USD/JPY is similarly following that track with a push back-above the 135.00 level.

If we are on the cusp of a return of USD-strength, there could be some room to the upside for USD/JPY and from a short-term basis, there’s been a build of a higher-high that keeps the door open for continuation potential. There’s an area of prior short-term resistance that can function as support, plotted around 135.58. The next spot of resistance sitting overhead is a Fibonacci level at 137.61.

USD/JPY Four-Hour Price Chart

Chart prepared by James Stanley; USDJPY on Tradingview

— Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX