US Dollar Talking Points:

US Dollar Bounces on FOMC Minutes, Awaits Fed-Speak

The US Dollar has pushed right back up to this week’s resistance following the release of yesterday’s FOMC minutes. While it certainly appeared as though those meeting minutes to bring some bearish potential, that didn’t come to pass as the bank was widely looking at last month’s rate cut as a ‘mid cycle adjustment.’ There wasn’t much for assurances of future rate cuts and in response the US Dollar put in a quick bounce from the 98.00 level to push back up to resistance around the 98.37 zone.

While the move was very visible, it’s also thus far been fairly mild, indicating that a large amount of focus is awaiting on the chorus of Fed speakers set to take the stage over the next two days. FOMC Chair Jerome Powell’s speech at Jackson Hole tomorrow will be particularly interesting, and it appears that Chair Powell has a tightrope to walk, keeping the door open to rate cuts and further softening while also not setting off alarms about any possible impending recessionary signals. After the recent thickening of drama around yield curve inversion in US Treasuries, global markets are rightfully cautious, particularly when the entire German yield curve has now moved into negative territory. Distortions abound and, at this point, we’re not entirely certain of how the Fed is going to handle policy moving forward. The next two days of hints and speeches will be key in trader’s pricing in that next direction.

US Dollar Four-Hour Price Chart

Chart prepared by James Stanley; US Dollar on Tradingview

Is the Euro Nearing a Bearish Breakout?

With the Fed seemingly avoiding the topic of future softening so far and with the wide expectation for Powell to straddle the line in tomorrow’s speech, sellers have started to re-test near-term lows in EUR/USD. If we do, in fact, get a net result of USD-strength on a lack of a rate cut pledge, there could be downside potential in the single currency. The psychological level of 1.1000 lurks just below and hasn’t been traded at in two years.

There’s a potent cocktail of negative news around the Euro, with last week’s announcement of potential stimulus out of the ECB to go along with the Italian political conundrum. To date, sellers haven’t been able to break fresh ground over the past week prices have built into a range. But, given the events on the calendar for the next couple of days, that potential certainly does exist.

EUR/USD Four-Hour Price Chart

Chart prepared by James Stanley; EURUSD on Tradingview

GBP/USD Grasps to Trendline Support, Builds Bear Flag

August has, so far, seen the brutal bearish trend in GBP/USD slow down a bit. Price action in the pair ran into a long-term trendline earlier this month and since, bears haven’t been able to break much fresh ground.

GBP/USD Monthly Price Chart

Chart prepared by James Stanley; GBPUSD on Tradingview

The continued jockeying at support has led to the build of a bear flag formation, which can help to keep the door open to short-side strategies on the pair, particularly for those looking for a net move of USD-strength around the Jackson Hole driver.

GBP/USD Four-Hour Price Chart

Chart prepared by James Stanley; GBPUSD on Tradingview

USD/CAD Tests Support, Avoids Breakdown

Perhaps lost in the shuffle was yesterday’s Canadian inflation print, which came out at a surprisingly strong 2% versus an expectation for 1.7%. The immediate response in USD/CAD was a push down to the 1.3250 psychological level, which helped to hold support; but sellers were unable to keep control. Prices have since reverted back to prior trend-line support.

As looked at in Tuesday’s webinar, USD/CAD carries reversal potential. The pair was in a hard bearish trend in June and early-July, reversing after sellers failed to re-test the 1.3000 handle. That’s led into a month-long retracement with prices pushing to as high as 1.3345. If we do see a break of that 1.3250 level, the door is open for a re-test of 1.3200, 1.3132-1.3150 and then 1.3066.

USD/CAD Four-Hour Price Chart

Chart prepared by James Stanley; USDCAD on Tradingview

AUD/USD: Sellers Shy Away from Key Support

Similar to GBP/USD above, a long-term level has come into play that’s further restrained the near-term theme. AUD/USD has been in a hard bearish trend since the beginning of last year. Opening 2019, the pair ‘flash crashed’ down until the .6750 level came into play, which has set beneath price action for the rest of the year’s trade like a beacon in the mist. That price started to get tested again for support in early-August, eventually giving way temporarily during a quick burst of USD-strength.

AUD/USD Monthly Price Chart

Chart prepared by James Stanley; AUDUSD on Tradingview

But that’s the point where sellers dried up and prices began to move-higher. Since then, we’ve seen a re-emergence of that price as support and sellers have been unable to leave it behind. That build of support at a key level can keep the door open for bullish scenarios on the pair, particularly for those looking at ways of getting short in the US Dollar.

AUD/USD Two-Hour Price Chart

Chart prepared by James Stanley; AUDUSD on Tradingview

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