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US Dollar Falls Through Support, EUR/USD to post-ECB Highs After NFP



Talking Points:

– This morning’s NFP report was somewhat of a mixed bag, but this seemed to do little to help US Dollar bulls as DXY has continued its Q3 descent below support. The likely culprit here was lagging Average Hourly Earnings within this morning’s Non-Farm Payrolls report, coming in at .2% versus the .3% expectation.

Noticeable thus far in the new quarter is the return of EUR/USD strength, and the pair is now trading at a fresh post-ECB high. Prices in the pair have been in a consistent bullish pattern over the past week, and this resembles a similar scenario from last year around the ECB’s October rate decision. When the European Central Bank extended stimulus into 2018, EUR/USD dropped below support and remained bearish for about two weeks. But this was soon offset by a red-hot GDP report out of Germany, and prices were pushing 1.2500 in short-order. Might we be headed for a similar scenario? European inflation came-in at a one-year high in June, and if it keeps up this pace, the ECB may have a difficult time sitting on current rates ‘at least through the summer of 2019.’

– DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

NFP as a Mixed Bag, USD Bears Push Below Key Support

This morning’s NFP repot was somewhat of a mixed bag. While the headline number beat expectations, the unemployment rate and Average Hourly Earnings portion of the report did not. Given the intense focus that’s been paid towards inflation out the US of recent, that miss in AHE likely took a considerable portion of market participants’ attention around the release, and the net response thus far has been a deeper drop in the US Dollar as the currency continues its Q3 sell-off.

US Dollar via ‘DXY’ Four-Hour Price Chart: Support Break to Three-Week, post-ECB Lows

US Dollar Four Hour Price Chart USD

Chart prepared by James Stanley

At this stage, the US Dollar is testing the 23.6% retracement of the bullish move that began in Q2. This does keep the US Dollar in a bullish spot, but given the pace with which losses have shown thus far in the fresh quarter, traders will likely want to move-forward with support or buy the dip strategies with extreme caution. There is a deeper support level that could be a bit more interesting, however, and this runs around the June swing-lows of 93.20 in DXY. This area of prior swing support runs very closely to the 38.2% retracement of the Q2 bullish move.

US Dollar via ‘DXY’ Four-Hour Chart: Deeper Support Potential Around June Swing-Lows

US Dollar usd four hour price chart

Chart prepared by James Stanley

As mentioned earlier, inflation in the US has become somewhat of a push point to US Dollar price action, and this can likely be drawn-back to Europe for a deeper explanation, which we’ll attempt to embark upon a little later. But of note is the fact that US inflation remains strong and continues to rise. Last month saw May inflation numbers print at 2.8%, continuing the trend that started over a year ago when June, 2017 inflation came-in at 1.6%.

US Inflation at 2.8% in the Month of May

US inflation rate by month

Chart prepared by James Stanley

This is a likely contributor as to why the Dollar is falling despite the headline number beat in this morning’s report. Average Hourly Earnings came in at .2% versus an expectation of .3%, and this makes for a miss on the annualized number, printing at 2.7% versus an expectation of 2.8%. Wage gains are thought of as a precursor to inflationary pressures, and with the Fed remaining persistently hawkish, this does keep them in-line to continue with their rate hike plans in the second-half of this year.

Why Might USD Drop on Stronger Inflation and a Hawkish Fed?

Because rates are concerned with future interest rate movements, and after the ECB’s rate decision in mid-June, expectations were very low for any hawkish moves out the European Central Bank. Deductively, this helped to drive capital flows into the US and the US Dollar as the Fed was one of the few games in town for near-term rate hikes. Meanwhile, the Fed remained persistently hawkish as US inflation had remained strong, and this further contributed to that aggressive sell-off in EUR/USD in Q2 as divergence between the two Central Banks appeared to be widening.

But – more recently, European inflation has come back to life, and we saw Euro-Zone inflation for the month of June print at the ECB’s target of 2% for the first time in over a year. This has brought questions to whether the ECB will be able to sit on their current rates ‘at least through the summer of 2019,’ and this has helped to bring EUR/USD back-above 1.1700.

Euro-Zone Inflation Comes Back to Life, Hits ECB’s 2% Target in June for First Time in Over a Year

Euro-Zone CPI monthly since July, 2017

Chart prepared by James Stanley

At this stage, EUR/USD is trading at a fresh post-ECB high, and testing above a key zone of support/resistance that exists from 1.1685-1.1736. Just above this zone is another area of interest that runs from 1.1821-1.1855, and there’s a justifiable argument for bearish continuation until this zone is taken-out. But – if we do see a continued bullish response as we trade deeper into Q3, the door is opened for a re-test of 1.2000 and perhaps even 1.2167 in EUR/USD.

EUR/USD Four-Hour Price Chart: Testing Trend-Line Resistance as Q3 Comeback Continues

eur/usd four hour price chart

Chart prepared by James Stanley

Growing Potential for EUR/USD Reversal as we Trade into Q3

We’ve looked at this a couple of times during our webinars this week, first on Tuesday and then again yesterday; but the scenario that we have here compares well to what happened in EUR/USD in Q4 of last year.

The Euro was strong from April to September, very much driven by the prospect of the ECB a) exiting stimulus and then b) hiking rates. This was such a strong theme that even with the FOMC hiking rates four times in 2017, the Euro continued to show considerable strength against USD. This was somewhat offset in October, however, when the ECB extended their stimulus program into 2018. This helped EUR/USD to finally break-below a key support zone, the same that is currently helping to set resistance, and the pair remained underneath for about two weeks with hints of bearish price action.

This was offset a short two-weeks later. A red-hot German GDP report came-out, and in short-order Euro bulls had returned to the party, and prices were back above the support zone ahead of another run towards fresh highs at 1.2500.

EUR/USD Daily: October, 2017 ECB Brings Two Weeks of Weakness, Soon Offset by Return of Strength

EUR/USD Daily Price Chart

Chart prepared by James Stanley

More recently, a bearish theme developed in the Euro in Q2 as driven by a combination of a) weaker European data b) rising political risk in Italy and then Germany and c) a dovish ECB in response to a and b. Prices once again slid below this key zone of support around that ECB rate decision, but sellers were unable to make any ground below the prior May swing-low. As European data has started to show initial signs of improvement via inflation, prices have re-engaged above support, and buyers are continuing to push higher.

So, even though the Fed is more-hawkish than the ECB and we’re likely going to be seeing more near-term rate hikes out of the Fed than the ECB – this does not preclude EUR/USD strength, much as we saw last year. Instead, focus on price action, and if bulls are so confident that they’re willing to trade through the June swing-high, the door re-opens for topside strategies in the single currency as we trade deeper into 2018.

EUR/USD Daily Chart: Euro Weakness Below Support Short-Lived, Redux of October, 2017?

eurusd eur/usd daily price chart

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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DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

— Written by James Stanley, Strategist for

Contact and follow James on Twitter: @JStanleyFX

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USD/JPY Rate Risks Fresh Monthly Highs as Overbought Signal Persists




Japanese Yen Talking Points

USD/JPY remains overbought as Federal Reserve Chairman Jerome Powell strikes a hawkish outlook in front of U.S. lawmakers, and recent price action keeps the topside targets on the radar as the exchange rate initiates a fresh series of higher highs & lows.

Image of daily change for major currencies

USD/JPY Rate Risks Fresh Monthly Highs as Overbought Signal Persists

Image of daily change for USDJPY

USD/JPY bounces back from the session-low (112.71) even as U.S. Housing Starts contract 12.3% in June, with Building Permits narrowing 2.2% during the same period, and the dollar-yen exchange rate may continue to appreciate over the remainder of the week as the Federal Reserve appears to be on track to further normalize monetary policy in 2018.

The testimony from Governor Powell suggests the Federal Open Market Committee (FOMC) will continue to embark on its hiking-cycle over the coming months as ‘incoming data show that, alongside the strong job market, the U.S. economy has grown at a solid pace so far this year.’ In turn, Fed officials may show a greater willingness to implement four rate-hikes this year as the committee ‘believes that–for now–the best way forward is to keep gradually raising the federal funds rate, and the FOMC may continue to prepare U.S. households and businesses for higher borrowing-costs despite the growing threat of a trade war with China.

Image of Fed Fund Futures

Keep in mind, Fed Fund Futures now highlight a greater than 60% probability for a December rate-hike, and expectations for higher interest rates may continue to prop up USD/JPY especially as the Bank of Japan (BoJ) sticks to its Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control.

With that said, USD/JPY may continue to exhibit a bullish behavior as the exchange rate initiates a bullish sequence and pushes to a fresh monthly-high (113.14), and the topside targets will stay on the radar as long as the Relative Strength Index (RSI) sits in overbought territory.

USD/JPY Daily Chart

Image of USDJPY daily chart

  • Broader outlook for USD/JPY remains constructive as both price and the RSI preserve the bullish trends from earlier this year, with the pair at risk of extending the advance from earlier this week as it carves a string of higher highs & lows.
  • Another close above the 112.40 (61.8% retracement) to 112.80 (38.2% expansion) region opens up the Fibonacci overlap around 113.80 (23.6% expansion) to 114.30 (23.6% retracement).
  • Will keep a close eye on the RSI as it trades in overbought territory, with a move below 70 raising the risk for a pullback in the exchange rate as the bullish momentum wanes.

For more in-depth analysis, check out the Q3 Forecast for the Japanese Yen

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

Image of DailyFX economic calendar

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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EUR/CAD Chart Triangulating, Downside Break Favored




Check out the DailyFX Q3 Euro Forecast forecast for our intermediate-term fundamental and technical perspective.

EUR/CAD is a cross-rate we’ve been watching recently given its technical positioning on the daily/weekly chart and its price action on the 4-hr chart. The top and drop in late-June put price back below a slope rising up from February 2017 in addition to the bottom of a shorter-term channel since the end of May.

Since declining below these thresholds we’ve seen a weak response. Looking at the 4-hr chart, we initially viewed the price sequence over the past month+ as an upward leaning head-and-shoulders pattern, but more recently with a contraction in price action we are seeing a triangle form. It could make for a complex right shoulder, but focus is now centered on the developing wedge. (Either way, whether one considers it a bearish wedge break or H&S breakdown, bias is the same…)

Given the context of the aforementioned daily slope/channel as well as the chart leaning lower off the March high, a downside break of the wedge is preferred. An undercut will initially have a swing-low from mid-June in focus in the vicinity of 15150/115, followed by a line running over January right around 15000 (yes, this t-line could be the neckline of a broader head-and-shoulders pattern). Beneath there lies the low near 14900 from the end of May.

EUR/CAD Daily Chart (Slope in play)

EUR/CAD Chart Triangulating, Downside Break Favored

Check out these 4 core tenets for Building Confidence in Trading.

EUR/CAD 4-hr Chart

EUR/CAD 4-hr chart, wedge forming...

We’ll take it one step at a time. A break below the bottom of the pattern on the 4-hr will have the trade in motion, with a stop placed back inside the pattern. Targeting 15150/115, 15000/4917. We’ll play it by ear as targets near – if momentum is strong, then looking to extend the trade, if momentum stalls then look to start peeling off the position.

On the flip-side, in the event of a breakout to the top-side and recapture of the aforementioned slope, traders may want to play the wedge breakout from the long-side – but given it will be uphill, on this end it is likely a trade which will be avoided.

***Updates will be provided on this idea and others in the trading/technical outlook webinars held on Wednesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday’s for the Becoming a Better Trader webinar series.

For another recently expressed bearish bias on this cross, check out Tyler Yell’s take on EUR/CAD.

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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British Pound May Rebound on UK Inflation Uptick





  • First UK CPI gain in seven months might boost British Pound
  • US Dollar may extend gains on Powell testimony, Beige Book
  • Lull in top-tier event risk makes for quiet Asia Pacific trade

A lull in high-profile event risk translated into quiet consolidation across the G10 FX space in Asia Pacific trade. Volatility might make a comeback in European market hours however as UK CPI data comes across the wires. The headline on-year inflation rate is expected to rise to 2.6 percent, marking the first increase in seven months.

The British Pound suffered heavy losses yesterday ahead of a House of Commons vote on an amendment that would force the UK into the EU customs union if no new post-Brexit trade agreement were reached. Prime Minister Theresa May opposed the move and speculation that it might pass anyway stoked worries about an imminent leadership challenge.

The government prevailed by a razor-thin majority, de-escalating the situation at least somewhat. That coupled with a strong CPI print that reminds investors of an incoming BOE interest rate hike might offer Sterling a lifeline. The priced-in policy path reflected in OIS rates puts the probability of tightening at Augusts’ meeting of the rate-setting MPC committee at a healthy 77.6 percent.

Later in the day, another day of testimony from Fed Chair Powell is in focus. This time, he will appear in the House of Representatives having spoken before a Senate Committee yesterday. A hawkish lean in those comments drove the US Dollar higher yesterday, as expected. More of the same coupled with an upbeat Fed Beige Book survey might keep the greenback on the offensive.

See our free guide to learn how to use economic news in your trading strategy!


British Pound May Rebound on UK Inflation Uptick


European Trading Session Economic Calendar

** All times listed in GMT. See the full economic calendar here.


— Written by Ilya Spivak, Currency Strategist for

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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