US Dollar Talking Points:
- It was a big week for the USD with both the Fed and NFP. The overwhelming takeaway was the dovish take from the FOMC on Wednesday, to the degree that a really strong NFP report could barely prod the US Dollar up to a fresh high with the bid quickly dissipating afterwards.
- Next week brings CPI back into the mix on Wednesday
- The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
NFP is now in the books and both of this week’s major drivers of FOMC and NFP meetings produced a strong impact for stocks, continuing the bullish trends that re-started in early-October and have, so far, driven the S&P 500 by 10.26% since the low on October 1st.
This is an amazing run by any stretch but considering the late stage of the rally in terms of the bigger picture bull trend in stocks and its made even more outstanding. The FOMC meeting this week seemingly waved the red flag in front of bulls as the bank continued to take on a very dovish tone, with Powell even refusing to speculate on possible rate hikes, instead saying that the bank was looking for ‘maximum employment’ before making any changes to rate policy. That moved the focus to this morning’s US Non-farm Payrolls report, which was solid all-the-way around and in response stocks continued to barrel higher with the S&P 500 jumping to another fresh all-time-high.
In the FX market, trends were less effusive. The US Dollar did push up to a fresh yearly high on the NFP release, but that move wasn’t able to last and prices quickly pulled back into the resistance zone that was in-play ahead of the print.
There may be a deductive message here, given the Dollar’s lack of enthusiasm in the face of seemingly positive data and developments. The USD has been very restrained around this key zone of resistance on the chart that had already reversed two short-term trends before today’s inflection. This may be keeping the door open for pullback potential into early next week, even with the bigger picture bullish potential that remains in DXY.
Next week’s big USD driver is CPI, set to be released on Wednesday.
US Dollar Four Hour Price Chart
EUR/USD Continues to Hold Above 1.1500
If the USD is going to substantiate a significant breakout beyond this zone of resistance, it’ll likely need an assist from EUR/USD. The pair continues to tap dance just above the 1.1500 psychological level, a price that’s been baiting bears for almost a month now.
Longer-term, there is a falling wedge in-play which can keep the door open to bigger-picture reversal scenarios. The fundamental backdrop does not seem befitting of that scenario at the moment, but its worthy of mention given the lack of bearish activity around that 1.1500 spot.
EUR/USD Daily Price Chart
GBP/USD: Bad Week for British Pound Bulls
The British Pound was smashed this week when the BoE took on a dovish tone at their rate decision. This was somewhat surprising as rate markets held legitimate expectations of a possible hike that did not happen. The currency fell out of bed yesterday morning and that weakness has continued into today.
Similar to the above in EUR/USD, GBP/USD retains a longer-term bullish formation, with the bull flag. And also like the above, that directional scenario is seemingly at odds with the current fundamental flow, however the differentiation is that the BoE is still actively looking to hike rates, at some point in the coming months, while the ECB has essentially downplayed those possibilities.
Near-term, the move has become very oversold with RSI on the four-hour chart testing below the 20-level ahead of this morning’ bounce. Nonetheless, GBP/USD is holding support ahead of a test of the 2021 low at 1.3412. If this morning’s higher low does hold, the door can remain open for pullback scenarios, particularly for those looking for the USD pullback to hold through early trade next week.
GBP/USD Four-Hour Price Chart
USD/JPY Ranges as Yields Soften
Powell was pretty dovish on Wednesday and that’s already hit rates markets with Treasury yields softening. Going along with that move has been a pullback in Yen weakness themes that were so prominent at the Q4 open. USD/JPY is putting in lower-highs over the past week and there may be a deeper pullback in the pair’s path.
From the daily chart below, we can see a short-term descending triangle brewing after bulls have failed to continue the move. This may be pointing to that pullback potential into early next week trade.
USD/JPY Daily Price Chart
AUD/USD Set for a Deeper Turn?
Also on the dovish Central Bank front we heard from the RBA earlier this week, after which the Aussie turned lower and has pretty much continued to drive in that direction for the remainder of the week. The rate decision led to a bearish engulfing candlestick and that momentum has pushed prices down to a fresh near-term low.
This does highlight the potential of AUD/USD for USD-strength scenarios into next week, with the possibility of a deeper turn in the pair.
AUD/USD Daily Price Chart
— Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX