US Dollar Price Outlook Talking Points:

The US Dollar has already clawed-back a large portion of the prior month sell-off, which was driven by expectations for a dovish twist at today’s FOMC rate decision.

Inflation data released last week showed US inflation remained very near the Fed’s goal; making for a more difficult case to go as dovish as market participants might want.

In this article, I look at the US Dollar against four major currencies in the effort of devising strategy for the days ahead.

US Dollar Primed for FOMC

Fed day is finally here, and there’s little more to write on the matter given the intense focus this item has received over the past couple of weeks. The general expectation is for the Fed to be more dovish at today’s meeting. The item of importance is just how dovish they might be, and this will likely be transmitted through the bank’s (SEP) Summary of Economic Projections. Markets have come to expect three hikes by the end of this year. So far, the Fed hasn’t forecasted any cuts; although the trend has been moving lower since the bank’s forecast for two hikes at last December’s meeting was cut down to zero at the March rate decision. The most recent FOMC meeting concluded on May 1, which correlates to the start of last month’s pullback in risk assets like the S&P 500. Stocks sold off for the remainder of the month, only finding support a couple of weeks ago as volatility started to show up in FX markets.

Early in June the fireworks started to show in the US Dollar after a dovish speech by Jerome Powell. That theme lasted for all of a week; at which point buyers came back-in after a big level of technical support came into play. Since then, buyers have been doing the driving, and price action has already retraced a large portion of that previous bearish move. At this point, the same 97.70 level that set resistance tops in November, December and March has come back into play as pre-FOMC resistance.

US Dollar Daily Price Chart

Chart prepared by James Stanley

EURUSD Digs into Support

Going along with the US Dollar’s check of a key resistance level, EURUSD has started to grind around a key support zone. This is the same zone that’s been in-play to varying degrees since last November; and this runs from Fibonacci levels at 1.1187-1.1212. The fact that the pair is holding on to this support as USD strength came rushing back last week highlights the attractiveness that EURUSD can carry for short-side USD scenarios. Similar to what was seen in the first week of June, a run of USD-weakness creates a squeeze scenario for long-term shorts. But, as fresh highs are created, stops are taken-out, and this helps to reset sentiment a bit as price action gyrates-higher: As discussed in yesterday’s webinar, if the pair can take out the 1.1500 handle the likely large number of trailed stops that sit above that price, the pair may finally be able to take-out the 1.1000 psychological level.

So, at this point, EURUSD can remain as one of the more attractive short-USD candidates; and not necessarily because of any positive appeal around the Euro, but more related to the elongated down-trend that’s vulnerable to squeeze scenarios.

EURUSD Daily Price Chart

Chart prepared by James Stanley

AUDUSD Bounce from Five-Month Lows

In contrast to EURUSD holding higher-low support above, AUDUSD folded down to a fresh five-month-low last week as USD-strength had come rushing back. After the resistance inflection at the .7000 big figure earlier this month, sellers have been back in control of the pair; and this can keep the door open for further short-side, particularly for strategies based around USD-strength. A bit of resistance potential remains around the prior support zone that runs from .6900-.6911.

AUDUSD Four-Hour Price Chart

Chart prepared by James Stanley

USDCAD Checks Support Zone After Busy Start to June

USDCAD has had a busy month of June already. After setting a fresh five-month-high in the final days of May, the pair dropped aggressively to go along with that wave of USD-weakness. But – as the Dollar scaled-back, so did USDCAD, and as looked at in this week’s FX Setups, this brought potential for a big zone of prior support to re-emerge. This zone runs from 1.3361-1.3385, and buyers have so far come back in to offer support here. This keeps the door open for topside as the pair remains one of the more attractive venues for themes of USD-strength.

USDCAD Four-Hour Price Chart

Chart prepared by James Stanley

USDJPY Holds Key Resistance

USDJPY remains of interest for bearish USD-themes. The pair has held a big zone of resistance over the past two weeks as the USD fireworks have been on full display. As strength has returned to the Dollar over the past week, USDJPY has appeared immune as price action has continued to range; highlighting the fact that the Yen has also been pretty strong over that same period of time.

This sets up the pair for interesting scenarios should USD-weakness show-up. That Yen-strength could be coupled with a falling US Dollar to look for fresh lows in the pair. The big area of interest for that next show of support appears to be around the 107-handle.

USDJPY Daily Price Chart

Chart prepared by James Stanley

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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If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX