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US dollar price action settings: EUR/USD, GBP/USD, USD/CAD, USD/JPY -by Ecork

Talking points about the US dollar:

Q2 has been eventful and the It’s now more than a year since the bullish trend of the US dollar. The dollar found support at 90 psychological level On DXY last year it was shown in both January/February and May/June. The third quarter of last year saw US dollar prices move toward short-term resistance, with a breakout seen in September after the Fed began forecasting an effective interest rate hike for 2022.

At the time, the Economic Stability Index (SEP) highlighted only one price hike in 2022. Inflation at that time had already exceeded 5% after the CPI recorded 5.3% for the month of August. But this simple step of highlighting one rate hike in 2022 was enough to show markets that the Fed, in fact, will respond at some point.

It took much longer than many expected.

Bank finally started hiking in March. Inflation had risen to 7.9% by then, and a 25 basis point rise at that meeting did little to flatten the upward trend in prices, with the May CPI coming in at 8.6%. But – the bank kept talking about the possibility of further increases, and the two previous rate decisions have led to moves of 50 and 75 basis points respectively, indicating that the Fed is ready to take some tough medicine here in trying to deal with inflation.

On the other hand, Europe appears to be a bit behind on a similar trend. Inflation in Europe has crossed 8% and there are likely to be more gains there. At this point, the European Central Bank mentioned a 25 basis point rise in July followed by another potential hike in September. But – will this get the job done? Or – will the European Central Bank find itself in a similar position to the Federal Reserve, hastily trying to catch up with policy in an effort to stem widespread and persistent inflation?

This will be a problem in the third quarter, but the answer to that question is key to the trajectory of the US dollar, which has enjoyed a solid ride over the past year on the back of the Federal Open Market Committee as the most hawkish central bank in the US. The developed world and given the pace of inflation elsewhere, this may not continue.

U.S. dollar

Take a long-term look at the US dollar and the currency is still floating above a significant resistance area. The 103.82 level was the swing high of 2017 and as of late, it has been useful as a short-term support point. But, promotion is also a file Fibonacci retracement at 101.80 which helped find support in late May.

However, it is noticeable that the upper wick from last week’s candle indicates a reversal. This happened right after the Federal Open Market Committee (FOMC) released its interest rate decision pointing to a 75bp hike. And when the market isn’t moving higher on apparently good news, look below, as there may be something else heading towards what’s near.

US dollar weekly price chart

The graph was prepared by James Stanley; US dollar, DXY on Tradingview

EUR / USD

The second quarter was a rough ride for the Euro. The important point to note in the EUR/USD is the area around the 19-year low at 1.0340. This was set in 2017 before the pair surged 2,000 pips the following year.

Recently, when the strength of the US dollar began to appear on the Internet in the second quarter of last year, the EUR/USD started a downtrend that did not stop or even slow down all that much – prices continued to fall.

So, when price action was pulling back in early May with support at 1.0340 in sight, calls for parity quickly prevailed in the news feed as banks started looking for that dodgy print at 1.0000, which they haven’t since 2002. that happens. It happens here too, as support appeared about 12 pips higher in early May.

And once again – just after the FOMC rate hike, as the US dollar was rising to a 20-year high, the EUR/USD pair pushed lower to support it, and once again, set a higher low.

This does not necessarily mean expecting a complete reversal. But, it may contain enough to allow some backtracking. And if we see basic tidal changes in the third quarter, maybe something else could develop. But, overall, I expect that support will eventually decline. We may just need a deeper pullback to remove some of the lagging stops in the short positions that have been going in this trend that is over a year old now.

EUR/USD Weekly Price Chart

EURUSD weekly price chart

The graph was prepared by James Stanley; EURUSD on Tradingview

British Pounds / US Dollars

It was an even more painful quarter for the GBP as the Euro outperformed the British Pound in the second quarter, which could see a breakout in the EUR/GBP.

But the BoE will almost certainly deal with a similar issue as the European Central Bank with inflation expected to continue rising there. In the UK, the Bank of England has been vocal about its forecast that includes the possibility of a recession with inflation rising above 10% later this summer. However, the difference is that the Bank of England has already begun the process of raising rates.

In the GBP/USD pair, the pair broke through a significant level last week at 1.2000. A strong pullback developed soon after, and there may be a little more room for this topic to work, with potential resistance in the 1.2452-1.2500 area on the chart. If that doesn’t hold, there is another spot of previous support/resistance, plotted around the 1.2650 area on the chart.

British Pound to US Dollar (GBP/USD) Weekly Price Chart

pound sterling dollar price chart

The graph was prepared by James Stanley; British Pounds / US Dollars on Tradingview

US dollar / Canadian dollar

The big question for the third quarter in the USD/CAD is whether the pair can surpass 1.3000. To confirm, there have been tests and there is a resistance zone extending from 1.2950 to 1.3000 which has been mainly tested since last August. So far, none of these tests has led to a permanent breakout although last week looked promising until prices pulled back to find support at 1.2950.

This keeps the door open for the possibility of a bullish breakout going into the third quarter, with the pair likely to finally break higher and leave the 1.3000 level behind (at least for some time).

USD/CAD weekly chart

usdcad weekly chart

The graph was prepared by James Stanley; USDCAD on Tradingview

US dollar / Japanese yen

How long can the Bank of Japan maintain the heavy pace of adjustment? That’s the big question for the third quarter, and it probably won’t go away anytime soon. Last week it was heard that the bank was keeping the same word as “watching closely” in its statement regarding the weak yen and the markets saw this as a clear signal to sell the currency again, which led to a new 24-year high in the USD/JPY.

But the idea of ​​this theme continuing for another full quarter, especially as most other global central banks have become more hawkish, seems a bit far fetched.

However, this is not a current concern, USD/JPY remains very close to the newly created 24-year high, and the previous resistance point around the psychological 135.00 level is now a potential support.

Four-Hour US Dollar/Japanese Yen Price Chart

Four hour chart in US dollars

The graph was prepared by James Stanley; US dollar / Japanese yen on Tradingview

— written by James StanleyAnd the Senior strategist for DailyFX.com

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