US Dollar Trend-Line Bounce Vulnerable Ahead of FOMC

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US Dollar Talking Points:

– Today at 2PM ET brings the Federal Reserve’s November rate decision, and expectations for any moves at this meeting are incredibly low. As has become usual around such meetings, the focus will be on the details of the statement, parsing the verbiage to look for clues of the bank’s tolerance to forward-looking policy. With expectations for a December hike currently hovering at over 80%, the focus will likely shift towards 2019 as there’s considerable variance in expectations there.

– Yesterday’s trend-line test in the Dollar held support, and prices soon moved back above the 96.00 level; but bulls appear to be losing some motivation and given the change in behavior in USD price action around mid-term elections, a very valid questions exists around whether the Dollar will continue selling-off as one major risk has left the horizon.

– DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

US Dollar Bounce From Trend-Line Support, FOMC Ahead

Later today brings the November rate decision out of the Federal Reserve, and this is the final meeting on the calendar that isn’t considered a ‘live’ meeting. December is a quarterly meeting bringing new projections along with a press conference, and once we turn the page into 2019, any meeting can be a live meeting with a potential rate move and accompanying press conference.

The expectations for changes at today’s meeting are very low. The big question is how clearly the bank lays the groundwork for future hikes, starting with a move in December, which is currently showing expectations at over 80%. Next year brings far more questions, as there’s a 9% probability of getting four additional hikes next year, 31% chance of at least three more moves, and 64% chance of at least two hikes for a total of 50 basis points added next year.

The labor market has remained strong and inflation is still brisk in the US, which keeps the door wide open for more hikes next year. A related question which will unfortunately not be answered today is how the Fed might consider the rise in global risks and whether the US economy is vulnerable. October brought a noticeable change-of-pace in the risk trade, and November has so far seen a return of buyers. But issues remain around tariffs, Italy and the UK with Brexit. Given the sensitivity shown to these themes just a few weeks ago, it seems as though this would be a risk that the Fed would not want to discount. But, for more clarity around that, we’ll likely have to wait until December when Fed Chair Jerome Powell fields questions from the media around that expected rate hike.

US Dollar Holds Trend-Line Support After Mid-Terms

Yesterday saw sharp rallies develop across equities after Mid-Term elections in the US, and this went along with a quick move of Dollar weakness in the wake of those election results. Yesterday, I looked at the Dollar trying to find support on a bullish trend-line that connects September and October swing-lows. That support held, and the corresponding move higher produced a rather noticeable bearish response in EUR/USD as the currency folded after a failed test at the 1.1500-handle.

US Dollar Four-Hour Price Chart

US Dollar Trend-Line Bounce Vulnerable Ahead of FOMC

Chart prepared by James Stanley

As we move towards today’s FOMC rate decision, the US Dollar remains above the 96.00 level following yesterday’s support bounce. Just ahead on the chart is a key area of resistance at 96.47, as this is the 23.6% Fibonacci retracement of the 2011-2016 major move in the pair. This has been a tricky area for bulls as this is the same level helped to stall the Q3 up-trend in the currency.

On the support side of the Dollar, the 96.04 level gave multiple instances of resistance in October and, as of yet, hasn’t been able to show much for lasting support. The 95.00 psychological level lurks below that, and was in play as recently as a month ago. And on a longer-term basis, the area around 94.20, which is the 38.2% retracement of the 2017-2018 major move has shown a tendency to hold support in the currency over the second-half of this year.

US Dollar Weekly Price Chart

US Dollar Trend-Line Bounce Vulnerable Ahead of FOMC

Chart prepared by James Stanley

EUR/USD Resistance Reaction at 1.1500 – But Buyers Not Done Yet

Yesterday’s quick incursion of USD-weakness helped EUR/USD to firm up to a key area of resistance at the 1.1500 handle. This was the top-end of the zone that I was looking for in the pair to keep short-side strategies alive, and since coming into play yesterday morning, prices have continued to soften from that level.

But, it does appear as though there is some support showing from a trend-line projection around the 1.1400 area, and this may be bulls taking a stand to try to continue the pattern of higher-highs and higher-lows that have continued thus far in November.

EUR/USD remains an attractive option for USD-strength strategies, as next week will bring back into the fold the ongoing discussions between Brussels and Rome regarding the Italian budget. But traders looking to establish short positions would likely want to wait for this pattern of higher-highs and higher-lows to break before re-opening the door to bearish setups.

EUR/USD Four-Hour Price Chart: 1.1500 Holds the Highs, But Follow-Through Support at Prior Resistance

US Dollar Trend-Line Bounce Vulnerable Ahead of FOMC

Chart prepared by James Stanley

NZD/USD: Kiwi Tags Fibonacci Resistance Around RBNZ

Yesterday brought a rate decision out of New Zealand, and there was little by way of new information there. The RBNZ was incredibly dovish coming into the announcement, and in response NZD continued its recent rally to craft fresh three-month highs.

This has been one my preferred areas to look for US Dollar weakness over the past few weeks, and with a bullish response showing around yesterday’s rate decision, that door can remain open.

The quandary around the pair at the moment is the fact that a range is building near those highs, and prices may need a greater pullback before the bullish trend is ready to continue. There’s an area of potential higher-low support in the .6725 area, taken from the August swing-high which comes in around a key Fibonacci level.

NZD/USD Four-Hour Price Chart

US Dollar Trend-Line Bounce Vulnerable Ahead of FOMC

Chart prepared by James Stanley

AUD/USD for USD-Weakness Strategies

Given the short-term overbought nature of the NZD/USD move above, traders may want to look for other options around strategies of US Dollar weakness. AUD/USD is another area of interest as prices have responded favorably to the recent gust of USD-weakness, helping to produce monthly highs in the pair. There appear to be two zones of interest for higher-low support; nearby is the .7250 psychological level and a bit deeper, around long-term Fibonacci levels at .7185-.7205, which had helped to set a swing-low after last week’s topside breakout.

AUD/USD: Four-Hour Price Chart

US Dollar Trend-Line Bounce Vulnerable Ahead of FOMC

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q4 have a section for each major currency, and we also offer a plethora of resources on 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.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

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.

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