Dollar Down-Trend Pulls Back, EUR/USD to Support After ECB Minutes

Talking Points:

– The US Dollar has held the support zone that we looked at yesterday, and prices are posing a bounce towards the 90.00 level on DXY. This move of USD-strength has helped EUR/USD to push closer to prior swing support at 1.2300, and this move hastened after the release of ECB meeting minutes from the bank’s March rate decision. Matters are not yet over for the Euro, as ECB-hawk and Bundesbank President, Jens Weidmann is set to give a speech at Noon ET today regarding the single currency’s strength.

– Yen weakness continues to show in a variety of fashions, with even USD/JPY staging a move of strength this week while the US Dollar sold-off against most other major currencies. This is opening the door to the prospect of a return of a longer-term, bigger picture theme, and below, we look at the possibility of working with Yen-weakness in both EUR/JPY and GBP/JPY.

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Dollar Holds at Support Zone, Bounces Up to Resistance

Weakness has come back into the US Dollar over the past week, as Friday’s disappointing NFP report helped to push the Greenback lower in a move that eventually tallied one-percent. Yesterday, we looked at the currency finding some support in a familiar area around the 89.50 level in DXY. This was an area of support that had held the lows through a large portion of March, and after this area helped the Dollar to cauterize some support yesterday, and we now have prices bumping-higher. At this stage, we’ve retraced approximately 38.2% of the sell-off that started last Friday, and DXY is catching a bit of resistance around the second level that we looked at yesterday.

US Dollar via ‘DXY’ Hourly Chart: 38.2% Retracement of the Prior Sell-Off

Chart prepared by James Stanley

A bit higher on the chart is another area of interest around the 90.00 level on DXY. The 50% retracement of that same recent sell-off falls in at 89.98, making this a confluent area of interest for lower-high resistance. If the Dollar should test this level today, the door opens for short-side continuation with stops investigated above this week’s swing high at 90.27.

US Dollar Four-Hour Chart: Potential Resistance at Confluent Level Around 90.00 on DXY

Chart prepared by James Stanley

Euro Weakness on ECB Minutes: Mr. Jens Weidmann Waits in the Wings

A big portion of this morning’s USD-strength appears to be emanating from weakness in EUR/USD. The Euro is lower on the morning after the release of ECB meeting minutes from the bank’s March meeting carried a dovish tonality. In those minutes, the primary points of interest came from the bank’s worries around a full-blown trade war with the United States along with concern around continued strength in the single currency. As investors loaded into the Euro last year in anticipation of an eventual move away from emergency-levels of accommodation, inflation in the bloc has started to temper as the Euro has remained strong; thereby making for a less forceful case to actually remove stimulus and increase rates.

This would be close to the opposite of the scenario surrounding the Bank of England, where the BoE launched a massive QE program in the wake of the Brexit referendum but before UK economic data could really indicate much pessimism. That pre-emptive ‘bazooka’ of stimulus drove the British Pound to such a low level that importers had to start raising prices, leading to the initial stages of stronger inflation. And then as inflation scaled-higher last year, crossing 2% and then eventually crossing 3%, the BoE was forced into action, hiking rates into an economic backdrop that they were seemingly pessimistic about.

Around the Euro as we move deeper into 2018 – the big question is whether inflation and growth will stick around long enough for the ECB to actually start looking at tighter policy options at some point this year, as the bank’s QE program is currently set to expire in September. Later today, we’ll hear from ECB hawk, Jens Weidmann, on the matter. Mr. Weidmann is the President of the Bundesbank (Germany’s Central Bank) while also being a member of the Governing Council at the European Central Bank. Mr. Weidmann has long displayed little sensitivity to speaking his mind or standing out from the crowd while calling for tighter policy in Europe, helping to set up this afternoon’s speech as an interesting driver around the single currency.

In EUR/USD, the resistance that we looked at yesterday around 1.2378 has held, and as we opened the Euro session earlier this morning, the pair dropped below the 1.2335-1.2350 support zone. At this point, we’re seeing a bit of support develop above the prior area at 1.2300, and this keeps the door open for topside as we approach this afternoon’s speech from Mr. Weidmann. A bit lower in this article, we look at another potential bullish play around the Euro that may be a bit more attractive, as it strips out a US Dollar that’s seen its fair share of volatility of recent.

EUR/USD Hourly Chart: EUR/USD Pulls Back From Resistance

Chart prepared by James Stanley

On a longer-term basis, the matter of interest around EUR/USD is one of conditional formatting. The pair has been range-bound since setting fresh two-year highs in January, and last week saw support play-in from an area that had helped the pair to bounce last month. If 1.2300 can’t hold the lows, it appears as though we’ll have a trip back down to this support zone, with the very relevant question as to whether or not a re-test of 1.2167 might soon be in the cards.

EUR/USD Four-Hour Chart: The Range Remains

Chart prepared by James Stanley

GBP/USD Runs into Trend-Line

For USD-weakness, we’ve been following the topside of GBP/USD. The pair has put in a move of bullish continuation in March that’s so far continued through April. The pair has recently bounced-up to test a group of prior highs in March, and at this point, prices are finding a bit of resistance on a trend-line projection taken off of the prior 2018 lower-highs. This is a big point of near-term resistance for the pair.

GBP/USD Four-Hour Chart: Testing Trend-Line Resistance

Chart prepared by James Stanley

That trend-line started to come into play yesterday morning and has now helped prices to reverse on three separate occasions, the last of which led to a lower-low. Prices found support at the first area of support we looked at two days ago, around the 1.4145 level. This highlights the possibility of a deeper retracement before the bullish trend might be ready for continuation, and after a slightly deeper pullback, the pair may have a more supportive backdrop to create a stronger drive of strength, helping to breakout from this trend-line of resistance. Below, we look at two possible areas for higher-low support above the prior inflection around the 1.4000 level.

GBP/USD Hourly Chart: Deeper Support Potential

Chart prepared by James Stanley

Yen Weakness Remains

Another item of interest across FX markets has been a return of Yen-weakness. The Japanese Yen was strong through most of Q1, but over the past few weeks a reversal of that prior theme has started to show, and as we move deeper in April, that strength in USD/JPY has shown no signs of abating.

In USD/JPY, the support zone that we’ve been following continues to hold the lows in USD/JPY; but bulls haven’t yet been able to pose a concerted break above the resistance that’s come-in around 107.50.

USD/JPY Two-Hour Chart: Bulls Hold Support as Lower-Highs Begin to Show

Chart prepared by James Stanley

The complication with USD/JPY is the prospect of holding long-USD exposure, as the Greenback has been weak for over a year now. As we’ve been following, setups in EUR/JPY or GBP/JPY could be far more interesting for strategies of Yen-weakness, as both the Euro and British Pound carry brighter bullish potential than what one may be able to muster around the Greenback.

In GBP/JPY, we looked at a higher-low setup earlier this week, and prices are now running up to fresh two-month highs, and prices are finding a bit of resistance at the 61.8% retracement of the February sell-off.

The Bulls are Back in GBP/JPY as Price Crafts Fresh Two-Month High

Chart prepared by James Stanley

EUR/JPY

We looked into the setup around EUR/JPY yesterday, and at this point we have the prospect of higher-low support around a key area of longer-term interest. Price action has re-scaled the 132.05 Fibonacci level, and this comes shortly after fresh highs were set earlier this week. The prospect of bullish continuation remains, and for those looking at bullish-Euro scenarios for this afternoon’s speech from Mr. Wiedmann, this may be more interesting than what’s currently available in EUR/USD.

EUR/JPY Four-Hour Chart: Bullish Potential As Prices Further Reverse February Sell-Off

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 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.

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— Written by James Stanley, Strategist for DailyFX.com

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