US Dollar Price Action Settings: EUR / USD, GBP / USD, USD / CHF, USD / JPY

US dollar talking points:

  • It has been a busy week for the US dollar, with yesterday’s FOMC rate decision followed by rate meetings in Japan, the UK and Switzerland.
  • The USD jumped to a new 20-year high after the Fed’s 75bp hike yesterday, but has since reduced that gain after a 50bp hike from the Bank of England and a 75bp hike. based by the Swiss National Bank. The EUR / USD momentum remains of great significance and the USD / JPY pair was hit by Japan’s intervention following a Bank of Japan rate decision last night. I had looked into the matter yesterday, warning of potential changes as inflation in Japan rose to 31-year highs.
  • The analysis contained in the article on religions price action And graphic formations. To learn more about price action or chart patterns, check out ours DailyFX Education section.

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It’s been a very busy 18 hours in all markets and technically it’s not over yet. Sure, we may have already heard a hawkish call from global central banks, but at this point price action is still ongoing on these issues and we don’t quite know what the network will look like.

To be sure, a significant amount of new information has been injected and this has already led to some key market moves. But it is the price action in the next few days that will indicate which trends may have staying power and which have been quick flashes in the pan. Perhaps more obviously, risk trading took a turn for the worse yesterday shortly after the FOMC press conference concluded. The stocks hit a two-month low overnight and are now looking to grab support.

In the US dollar, on the other hand, there was a very sharp breakout that occurred even before yesterday’s FOMC announcement, with a continuation going through the Asian session and the opening of the Euro. This is also the period when the Ministry of Finance in Japan announced USD / JPY intervention, which trampled the USD bullish trend and pushed a pullback, with support manifesting around the previous resistance.

Four-hour chart of the US dollar

Chart prepared by James Stanley; USD, DXY on Tradingview

USD support potential

This week’s breakout in the USD has already broken through a couple of key areas. There was a construction of resistance around 110 which led to another resistance test at 110.24 which started to break before the FOMC meeting.

Each of those previous resistance points becomes potential support, and there is also a bullish trend line that was previously in use to help create the ascending triangle that led to the breakout of 110.24.

US dollar two hour price chart


Chart prepared by James Stanley; USD, DXY on Tradingview


For the past couple of months I have been talking about the EUR / USD parity scenario. The fundamental context in Europe remains quite negative and the EUR / USD trend is already well structured. And parity is an important psychological level that ideally it should fight before sellers are able to leave it behind. And I have pointed out more times than I can count, when the EUR / USD was climbing higher in 2002 as the single currency was gaining widespread and global acceptance, the parity took about six months to finally leave behind. .

Parity is somehow the ultimate psychological level and it started coming back into the game in July. And throughout August and early September, it had folded but not fully broken, as prices were only above parity earlier this week.

But there was also a bearish narrative that started making that support vulnerable, and yesterday during the FOMC it finally broke.

Sellers pulled support yesterday to set a new 19-year low in the EUR / USD pair.

EUR / USD four-hour chart


Chart prepared by James Stanley; EURUSD on Tradingview

Now that a breakout of the EUR / USD support is underway and the formation of the descending wedge seems invalidated, the big question is whether the sellers will run. The door looks open for this, but first there must be a low-high resistance show to keep the ball moving to new low lows and low highs.

From the two-hour chart below, we can already see some seller’s defense of the .9900 handle, which shows quite a bit of resistance at an earlier short-term support point, taken from around .9862-.9876. If the bulls manage to reap a deeper pull, the .9950 area remains attractive for lower-high resistance themes as well.

EUR / USD two-hour price chart


Chart prepared by James Stanley; EURUSD on Tradingview


The Bank of England just raised rates by 50 basis points. GBP / USD has rebounded from the new 37-year lows, but sellers have remained quite active here, maintaining resistance at the previous support around the 1.1350 area.

GBP / USD two hour chart


Chart prepared by James Stanley; GBPUSD on Tradingview


I don’t touch USD / CHF often and there are a few reasons for that. But, of late, the currency has been moving and this morning the Swiss National Bank made a 75bp hike, which brought some volatility that interests me.

That hike led to the dreaded “rate hike selloff” in the currency, but this pushed the price to a key resistance zone, taken from around .9800 to around .9850. A hold here may hold the door open for reversal scenarios at some point, but if we see clearance above the psychological level of .9900, the door quickly opens for a parity test there too.

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USD / CHF daily price chart


Chart prepared by James Stanley; USDCHF on Tradingview


I saved the big one for last …

I talked about it yesterday as the Bank of Japan rate decision after the FOMC was apparently ignored by much of the financial media. But, earlier in the week, Japanese inflation rose to a new 31-year high and, while at relatively low levels relative to the rest of the world, it’s a huge change for the nation of Japan. And now there is a series of cautionary tales about the problems that can arise from central banks ignoring inflation.

However, at last night’s BoJ meeting, Governor Kuroda said that “it can be expected that there will be no changes in our forward leadership for about two to three years.”

This was widely read to mean that the BoJ would not intervene – and the USD / JPY responded by jumping to another new 24-year high, breaking above the psychological 145 level.

This did not last long, however, as a couple of hours later the Ministry of Finance announced that Japan would intervene by buying yen and selling US dollars for the first time since 1998. The Bank of Japan then executes the move, and this has created a large withdrawal of JPY trends in the European session, which is still under evaluation at the time of writing.

USD / JPY four-hour chart


Chart prepared by James Stanley; USDJPY on Tradingview

USD / JPY advances

Perhaps the most important part of this dynamic is that we now know where the Ministry of Finance tried to draw a line in the sand, and I’m looking at the 145 level as that price.

And the problem of interventions: they don’t always ‘work’. It is a dangerous place to find a central bank, particularly when speculators know what they are trying to protect. And, at this point, given the positive carry behind USD / JPY, Japan is almost trying to counter the tide of capital flows that rarely seem to be working well.

This helps explain why we have already seen such a strong rebound in USD / JPY, even though the Japanese government has started to take an approach to counter it.

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How to trade USD / JPY

30 minute USD / JPY price chart


Chart prepared by James Stanley; USDJPY on Tradingview


If we are seeing a legitimate reversal of yen trends, there may be greener pastures away from the US dollar, such as EUR / JPY or GBP / JPY, focusing those yen themes against currencies that are not backed by yields as high as the US dollar. and, in turn, trying to take advantage of the lower carry-over rates which could suppress scenarios of yen weakness in the event of continued rebounds.

— Written by James Stanley, Senior Strategist, and Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX

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