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Price Action Setups Around a Falling US Dollar After CPI Sell-Off

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In this webinar, we used price action to look at macro markets in the aftermath of this morning’s US CPI report. That report showed continued strength in US inflation as we’ve now had the sixth consecutive month of at-or-above-target inflation as we approach next week’s FOMC rate decision. But, despite the backdrop for higher rates as driven by consistent inflation gains, the US Dollar remains weak as the year-long down-trend remains in order.

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US Dollar Takes a Hit After CPI

This morning’s CPI print out of the US was not all that bad, as we saw the sixth consecutive month of at-or-above target CPI growth ahead of next week’s Federal Reserve rate decision. But the reaction in the Dollar was a pronounced move of weakness that syncs well with the timing of this morning’s CPI release, even though many are attributing this downdraft in the Greenback to the morning announcement of the firing of Secretary of State, Rex Tillerson. And while there may be something there, the fact of the matter is that most drivers, both positive and negative, have brought upon the same net result of USD-weakness. This alludes to the fact that there is something else going on here helping to drive weakness into USD even in-light of seemingly positive factors, like inflation pushing the Fed towards tighter policy options. This can help to keep the bearish trend in the US Dollar at the forefront as we near next week’s FOMC rate decision.

US CPI: Sixth Consecutive Month At-Or-Above Target, USD Falls in Response

us cpi monthly

Chart prepared by James Stanley

EUR/USD Support Bounce Runs to 1.2400

Last Thursday we looked at support in EUR/USD, and we’ve since seen a respectable recovery from the ECB-fueled dip to 1.2280. The problem at this point is the fact that we’re so far away from support that bullish setups could be difficult to justify. A pullback to the prior support zone of 1.2335-1.2350 keeps the door open for additional topside in the pair; perhaps even to another approach towards the 1.2500 psychological level.

EUR/USD Four-Hour Chart: Approaching Last Week’s Highs After 2280 Support Visit

eurusd four hour chart

Chart prepared by James Stanley

GBP/USD Catches a Bid After Spring Statement

Growth forecasts were upgraded this morning in the UK’s Spring Statement, and this has brought some life into the British Pound. This helped GBP/USD to break above a bearish trend-line that’s held in the pair since late-January. This can start to open the door for short-term top-side setups, but for the longer-term move, traders will likely want to await a bullish break of the 1.4000 psychological level, as stops can be difficult to justify given recent swing-lows.

GBP/JPY Approaching Under-Side of Post-Brexit Trend-Line

For short-side GBP plays, GBP/JPY may be getting close to a point of interest, as there is a bit of confluence around 149.41, as we have both the 38.2% Fibonacci retracement of the February sell-off along with the projection of the post-Brexit trend-line that had previously done a good job of helping to carve-out support.

AUD/USD Rallies to Resistance Zone

While the US Dollar has been exuberantly weak this morning after that CPI report, AUD/USD has started to show what could finish as an indecision candlestick on the Daily chart. Resistance is coming-in around a zone that we’ve been following around the .7900 level, and this can start to open the door to short-side setups. We looked at how lower time frames can be used to assist with timing into the setup; allowing for traders to let the move start to show before looking at fading what’s been a really strong short-term trend. This was previously a favored long-USD candidate, and with today’s resistance starting to show even as the US Dollar remains weak, that door may be re-opening around the Aussie.

NZD/USD Testing Longer-Term Fibonacci Resistance

We’ve been following a level in NZD/USD that’s started to come into play, and now its time to watch what the pair does to see if this is a workable theme. The level in question is the 38.2% Fibonacci retracement of the 2009-2011 major move at .7335, and this level has done a great job of helping to form resistance on the weekly chart over the past couple of years. With a really weak US Dollar running into a strong NZD in February, the pair was able to temporarily eclipse this value, leading to a fall to .7200. But since that support showed at .7200, prices have been on the way up and we’re now re-testing .7335 again.

We looked at the hourly chart to focus-in on this recent strength, and how a break below a short-term trend-line can start to open the door to short-side setups.

USD/CAD Comes Back to Life After 1.3000 Resistance

Last week saw a really weak Canadian Dollar as USD/CAD testing the 1.3000 psychological level. After three days of tests Monday-Wednesday, USD-weakness took over and drove the pair down to 1.2800. Since then, we’ve seen more recovery as CAD-weakness has remained a dominant theme. We’re now catching resistance around 1.2928, which is the 50% Fibonacci retracement of the May-September sell-off from last year. We looked at how shorter-term charts can be used to work with the current setup in USD/CAD.

Yen-Weakness Pronounced Ahead of BoJ Minutes

There appears to be a brewing theme around the Japanese Yen that should get some more information tonight with the release of BoJ meeting minutes from last week’s rate decision. Yen-strength has become quite pronounced in 2018, and this goes along with a consistent rise in inflation that saw January come-in at 34-month highs. This is similar to the Euro and the ECB last year, where stronger growth and inflation led markets to buy the Euro in anticipation of an eventual move away from stimulus. While we’re still waiting on confirmation of that move away from stimulus, Euro-strength remains; and in the Yen, that strength has crafted a fresh yearly-high against the US Dollar. Starting around the Tokyo open last night, however, was a spate of Yen-weakness that had begun about 24 hours ahead of the release of those meeting minutes.

USD/JPY Weekly Chart: Support Holding on at a Long-Term Area of Interest

usdjpy weekly chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the Euro, the British Pound or 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 our EUR/USD, GBP/USD, USD/JPY, AUD/USD and U.S. Dollar pages. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

— Written by James Stanley, Strategist for DailyFX.com

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Contact and follow James on Twitter: @JStanleyFX



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Forex

Bitcoin Net-Longs Slide Into 1-Month Lows

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Bitcoin Client Positioning

Bitcoin Net-Shorts 5.2% Higher Since Last Week

Bitcoin: Retail trader data shows 76.8% of traders are net-long with the ratio of traders long to short at 3.3 to 1. The number of traders net-long is 1.1% lower than yesterday and 8.0% lower from last week, while the number of traders net-short is 0.5% lower than yesterday and 5.2% higher from last week.

Be sure to check out our Bitcoin Trading Guide if you’re new to cryptocurrencies!

Bitcoin Net-Long Dip Indicate Bullish Bias

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Bitcoin prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Bitcoin price trend may soon reverse higher despite the fact traders remain net-long.

— Written by Yayati Tanwar, DailyFX Research



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Canadian Dollar (CAD) Eyes Latest Inflation Report

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Canadian Dollar Price, News and Analysis

  • Inflation expected unchanged, but any uptick could seal another rate hike in October.
  • Canadian economy continues to grow strongly.

IG Client Sentimentshows retail are 46.3% net-long of USDCADa bullish contrarian sentiment indicator.

Canadian Dollar May Receive a Boost on Latest Inflation Report

The Canadian dollar is currently treading water ahead of the July CPI report with the market expecting a 0.1% month-on-month rise and a 2.5% annualized reading, both unchanged from last month’s strong report. Canadian CPI grew at its fastest rate in over six years in June, due to higher energy prices, and another strong reading today will increase pressure on the Bank of Canada to hike rates again, probably at the October meeting. The central bank has already hiked rates by 0.25% twice this year and by a total of four times in the last 12 months. Last week data showed Canadian unemployment falling to 5.8% from a prior 6% while employment grew by 54.1k against expectations of 17K and a prior month’s 31.8k.

USDCAD has remained in a 1.2950 – 1.3200 range over the last month, despite the strength of the US dollar and fears over the NAFTA negotiations. The pair currently trade at 1.3130, just above 23.6% Fibonacci support at 1.3118 and below the July 24 high at 1.3192. An inline or slightly stronger-than-expected reading would seal another 0.25% rate hike and see USDCAD break lower with the 38.2% Fibonacci retracement at 1.2952 the short-term target. A weaker-than-expected reading today would see the July 24 high under pressure.

We have recently released our Q3 Trading Forecasts for a wide range of Currencies and Commodities, including the Canadian Dollar.

USDCAD Daily Price Chart (January – August 17, 2018)

Canadian Dollar (CAD) Eyes Latest Inflation Report

DailyFX has a vast amount of updated resources to help traders make more informed decisions. These include a fully updated Economic Calendar, and a raft of Educational and Trading Guides

— Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1



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USD/CNH & Gold Price Action Point to Reversals Gaining Traction

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Gold, USD/CNH Technical Highlights

  • Gold price reversal and sentiment supportive of a low
  • Correlation between Gold & CNH extremely high
  • USD/CNH reversing hard from near Dec ’16 peak

For an in-depth intermediate-term technical and fundamental outlook, check out the Q3 Gold Forecast.

Gold price reversal and sentiment supportive of a low

On Wednesday, we were discussing the oversold, overly bearish backdrop in gold, but that first we needed to see some type of swift flush and reverse or something of that nature before looking for a low. We didn’t have to wait long, as the past few sessions qualified as flush-and-reverse price behavior, with silver, unsurprisingly and in silver-like fashion, displaying even more capitulation-like behavior, shedding 3 of its 4% in an hour on Wednesday.

As long as gold & silver can hold onto yesterday’s lows on a closing basis, we’re looking for at least a rebound back to the point of origination of the most recent leg lower (~1210 & 15.30). If another leg lower develops we’ll have to reassess.

Check out the IG Client Sentiment to see how other traders are positioned and why it can be used as a contrarian indicator.

Gold Daily Chart (Flush & Reverse)

Gold daily chart, flush and reverse

Correlation between Gold & CNH extremely high

If gold is reversing then so is CNH and vice versa. Gold and CNH have a 3-month correlation of 97%. They are effectively the same market at this juncture. How one plays it is up to the instrument of choice, but be mindful of total risk if trading both.

Gold/CNH Daily Chart (97% 3-mo Correlation)

Gold/CNH daily chart (97% 3-mo correlation)

USD/CNH reversing hard from near Dec ’16 peak

USD/CNH is in the process of carving out a weekly key-reversal bar just shy of the December 2016 high, assuming it doesn’t post a big rally from here. Trade a little higher today or lower and the reversal currently in place will stand as confirmed.

The candle development along with a break in the upward channel on the daily time-frame should usher in more selling, and perhaps in swift fashion. Looking lower, there are minor levels along the way that were carved out as the channel matured, but the broader target is the bottom of the upward grind since last month, right around the 6.60 mark.

USD/CNH Weekly Chart (Key-reversal nearly complete)

USD/CNH weekly chart, key-reversal as long as no sizable rally ensues today

USD/CNH Daily Chart (Channel break to send it lower)

USD/CNH daily chart, channel break to send price lower

Resources for Forex & CFD Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX



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