US Dollar Price Action Setups: EUR/USD, USD/JPY, GBP/USD, Gold

US Dollar Talking Points:

• It’s been a busy week since last week’s 50 bp cut from the FOMC.
• As of the start of this webinar, the USD was grasping at the same support that’s been in-play for the past month. Sellers have an open door to run a break, including after the announcement of the rate cut, but have been unable to do so.
• For USD-weakness, GBP/USD and AUD/USD continue to look attractive, along with bigger-picture themes in USD/JPY. For USD-strength scenarios, range continuation in EUR/USD or continued pullbacks in short-term USD/JPY remain attractive.

The Fed cut by 50 and warned of another 50 bps of cuts into the end of the year, yet markets are already building in a greater expectation for even more softening. As of this writing, there’s a mere 18.0% probability of only another 50 bps of cuts, leaving a 72% probability of at least 75 bps of softening and a 33.2% chance of at least 100 basis points.

Amazingly, even with that, the US Dollar hasn’t been able to stage a larger breakdown in the DXY as the currency continues to grasp at the same range support that’s been in-play since late-August.

 

Target Rate Probabilities into End of Year

Image prepared by James Stanley, data derived from CME Fedwatch

 

As I shared in the webinar, the US Dollar doesn’t exactly have a bullish look to it at the moment as we’ve seen lower-highs post after the FOMC-driven pullback. This likely has to do with counterparts, such as EUR/USD stalling inside of the 1.1200 handle.

But the main look now would be to see if DXY can hold a higher-low, above the Thursday swing-low from last week which was above the false breakout from the Wednesday rate announcement.

 

US Dollar Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

 

EUR/USD

 

Regarding counterparts, it’s difficult to muster a bullish case for the Euro as the ECB is similarly in a rate cutting cycle. But, they’ve also suspended forward guidance, and this leaves markets up to the guesswork of estimating how much and how soon that additional softening will show.

There have been some bullish items, to be sure, and as of this writing, the pair remains above a bull flag formation that was broken-through last week. There was also the defense of the 1.1000 handle from the week before, and the day before the ECB cut rates again. That rate cut led to a rally and price remains very near 2024 highs.

But notably, bulls have had an open door to push a breakout and all they could do last week was rally up to a lower-high at 1.1175. The reaction to that has since held a higher-low so there’s still an open door for a test at or above 1.1200. This also highlights possible capitulation scenarios, similar to what showed on underside-USD scenarios at FOMC last week, where a fresh high comes into the equation only to reverse shortly after, highlighting little tolerance from buyers above 1.1200.

But the fact that this hasn’t yet set a fresh high keeps an open door for range continuation scenarios, and that would be bullish-USD looking for range continuation there, by deduction. If looking for bearish-USD scenarios, there may be greener pastures elsewhere.

EUR/USD Daily Price Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

 

USD/JPY

 

While the fundamental case behind the long side of USD/JPY is perhaps weaker than at any point since before March of 2022, price action hasn’t matched that yet.

I looked into this quite a bit last week as the pair opened the week with a test of 140.00, followed by bullish reversal that ran into the end of the week. So far this week, buyers have continued to push and there’s now a test at the upper trendline making up the falling wedge formation.

The big question now is whether we see the counter-trend move continue to push as there’s a short-term build of bullish structure, with higher-low support potential at 142.50 and 141.69.

If this does break down to fresh lows, that could drive additional USD-weakness very similar to what showed in July and August as carry unwind in the pair was pushing USD-lower, and EUR/USD-higher.

If bulls can force above the resistance side of the falling wedge, the scope for topside continuation is there, with focus on next resistance at 145.00 after which the 147.94 level comes into view.

 

USD/JPY Daily Price Chart

Chart prepared by James Stanley, USD/JPY on Tradingview

 

GBP/USD

 

The pair that has been cleaner for USD-weakness themes has been helped along by a central bank that didn’t cut rates last week, and that’s GBP/USD.

I had looked at the pair as one of the more attractive venues for USD-weakness a couple of weeks ago, and then again when a test of the psychological level at 1.3000 came into the mix. The pair has added more than 390 pips since and even as EUR/USD has stalled inside of the 2024 high, GBP/USD has rallied up to a fresh two-year-high.

Both daily and weekly charts are pushing into overbought territory, as of this writing, and that makes the market difficult to chase. But, as I shared in the webinar there can be context for continuation particularly if a pullback to support appears. For that, I’m tracking zones from 1.3332-1.3341 and then down around 1.3249-1.3267.

 

GBP/USD Four-Hour Price Chart

Chart prepared by James Stanley, GBP/USD on Tradingview

 

Gold

 

Gold continues to impress, and I had looked into that yesterday in the article entitled, Gold Overbought Daily, Weekly, Monthly: But Does it Matter?

A little less than 24 hours later we can illustrate that it doesn’t necessarily matter much to near-term price action. It can get even more overbought.

This also doesn’t necessarily mean that one should chase price-higher with reckless abandon and the fact that those overbought readings are flashing can provide important context. The first spot of support looked at in that article yesterday has since helped to hold the lows, leading into another extension of the breakout to another fresh all-time-high. In the webinar, I added a couple more short-term levels of note to look at a similar scenario.

If we do see a more sizable pullback in gold, the 2600-2602 zone remains key support, in my opinion, as it provided a rigid resistance response at FOMC last week but, to date, hasn’t been tested for support as bulls showed up $2.57 overhead (which explains the zone on the below chart from $2600-2602.57).

 

Gold Hourly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

 

--- written by James Stanley, Senior Strategist