US Dollar Talking Points:
- The US Dollar is in focus this week as a widely-awaited FOMC rate decision is on the economic calendar for Wednesday.
- The Fed has long been expected to cut rates at this meeting but the bigger question is what else might be in store? The FOMC hasn’t yet released updated projections since the first rate cut in a decade at the late-July meeting, and the Summary of Economic Projections will likely receive considerable focus.
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US Dollar, Reverse and Return to Resistance
It was a busy latter portion of last week in the US Dollar, as the currency initially spiked on the ECB announcement of fresh QE, with buyers pulling up short of re-testing the two-year-high that was set a week earlier. Prices quickly dropped into last week’s close, and this week’s open has seen DXY push right back to the resistance zone that runs from 98.33-98.50. This sets the currency up for what could be another interesting week with the FOMC rate decision on Wednesday looming large. A 25 basis point rate cut here has long been expected; but more pressing is the context of the report as the Fed will release an updated Summary of Economic Projections for the first time since starting to cut rates.
When the Fed did cut for the first time in a decade at the July meeting, Jerome Powell framed that move as a ‘mid cycle adjustment.’ Will he do the same at next Wednesday’s rate cut, or will he keep the door open for more softening and, in-turn, more USD weakness?
US Dollar Eight-Hour Price Chart
EUR/USD Higher-Low, Snaps Back to Trend-Line Resistance
The ECB went all-out at Thursday’s rate decision, cutting rates deeper into negative territory while also announcing an open-ended QE package. This initially helped to tilt the single currency-lower, but sellers were stopped short of re-testing the two-year-low that was set earlier this month. Prices soon ripped-higher until resistance showed at a confluent area on the chart, as taken from the prior swing-low at 1.1109 that ran into a bearish trendline projection.
That resistance has held into this week’s open and sellers have continued to push. The big question at this point is how much ground they might be able to break ahead of the Fed’s widely-expected rate cut on Wednesday.
EUR/USD Eight-Hour Price Chart
GBP/USD Ticks 1.2500 – More Gains in Store?
Perhaps lost in the shuffle around last week’s dramatics has been the continued bullish trend in GBP/USD. I started looking for reversals here last month, but it was early-September price action that really brought buyers into the equation. Last week’s post-ECB USD weakness helped to firm GBP//USD up to a fresh six-week-high, re-testing the 1.2500 psychological level as resistance.
The big question at this point is one of bullish continuation potential: Will buyers show-up to provide support at prior resistance, taken from around the prior swing-high of 1.2378 up to the 1.2400 level of prior support?
GBP/USD Four-Hour Price Chart
USD/CAD Bounce from Support into Resistance – Can Bears Grab Control?
Early September trade brought CAD bulls back with earnest after the Bank of Canada avoided the topic of rate cuts at their Central Bank meeting a couple of weeks ago. This allowed for USD/CAD to pose a smooth bearish push down to a key zone of support that runs from 1.3132-1.3150; at which point sellers slowed and prices gyrated into last week’s drivers.
The post-ECB response in the pair was one of USD-strength and USD/CAD hurriedly returned to a key zone of prior resistance that runs from 1.3250-1.3300. Prices remain in this area ahead of the US open, looking to the Wednesday FOMC rate decision for the next directional push.
USD/CAD Eight-Hour Price Chart
USD/CHF Relatively Quiet, Holds TL Support
Over the past couple of weeks I’ve been directing long-USD strategies towards USD/CHF, largely due to the relatively clear nature of the stance at the Swiss National Bank. Given the heavy exposure of the Franc to the Euro, the SNB is rightfully cautious of currency strength, threatening to intervene in markets if need be. This threat has helped to keep Franc-bulls at bay and a bullish trend channel has developed over the past month.
This can keep the door open in the pair for bullish USD strategies, particularly if the Fed disappoints markets looking for a considerably more dovish bent from the bank. If the Fed does pose Wednesday’s cut as another ‘mid cycle adjustment,’ the US Dollar can rally and this would remain as an attractive theme against the Swiss Franc.
USD/CHF Eight-Hour Price Chart
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.
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— Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX