USD Price Action After the Rally: EUR/USD, GBP/USD, AUD/USD, USD/JPY, Gold

US Dollar Talking Points:

• The US Dollar put in its largest weekly gain last week since September of 2022, the week before DXY had topped.
• The backdrop now is different, however, as the reversal in Q4 of 2022 was very much helped along by the ECB pushing up to 75 bp hikes. That doesn’t seem a realistic scenario at this point, and USD bullish strategies remain attractive against the Euro.

The US Dollar had considerable motive to break down in September, yet sellers were continually stifled. DXY went oversold on the weekly chart in August and that’s been somewhat of a rare occurrence, with the last instance showing back in January of 2018. That type of backdrop is usually coming on the heels of an aggressive one-sided push and for the Dollar, that was a harsh sell-off in the first two months of Q3 as the carry trade in USD/JPY unwound.

But USD/JPY began to stall at the 140.00 handle and EUR/USD was having trouble taking out 1.1200, keeping the now 21-month range intact in the pair. And as the door opened to Q4 bulls made a stark push in USD as the currency broke out of a falling wedge formation that we had looked at in the prior webinar last Tuesday.

Now the USD is finding resistance at a confluent spot of Fibonacci levels around 102.55. This is a tough spot to chase the currency higher and, in the webinar, I looked at a couple of spots of interest for pullback scenarios in the DXY move in the form of GBP/USD and AUD/USD. This is similar to last week’s webinar with the addition of a week’s worth of price action.

In USD, there’s a couple of bullish scenarios to entertain. The first would be defense of the swing low at 102.29 earlier this morning. For this, I would want to see a higher-low to open the door for that. The second and perhaps optimal for longer-term backdrops would be a pullback to support at prior resistance in the 101.82-101.92 area. There’s also Fibonacci levels of interest below that that could keep the door open for topside trends at 101.41 and 101.65.

US Dollar Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD

For bullish USD setups I still like the prospect of bearish trend continuation in EUR/USD. The complication at this point for the major pair is that it’s holding support in the familiar area of 1.0943-1.0960, which started to come into play last Friday and as of this writing, has helped to build a structure of short-term higher-lows. This, of course, doesn’t preclude bearish continuation, but it does point to the value of patience and the potential for a larger pullback.

So far, we’ve seen sellers defend the 1.1000 level, not allowing for a resistance test there. That can be seen as anticipation, like what showed in September with support holding above the big figure.

EUR/USD Four-Hour Price Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

EUR/USD Bigger Picture

At this point the mean reversion has been going for more than 21 months in EUR/USD. The 1.0943 Fibonacci level remains key as this is related to the same setup that had the 2023 high at the 61.8% and the current 2024 low at the 38.2% retracement. A closed body break on the daily or perhaps even the four-hour below 1.0943 opens the door for continued range in the pair.

EUR/USD Daily Price Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

GBP/USD

Cable has posed a sizable pullback since USD-strength started up and there’s also been some softening on the fundamental side as the Bank of England has started to sound more dovish.

I’m still tracking GBP/USD for USD-weakness scenarios and there’s been a similar stalling in the short-term chart of GBP/USD compared to what was looked at above in EUR/USD. At this point, the 1.3100 level is coming in as short-term resistance. If bulls can hold the morning’s higher-low and push another higher-high, the door opens for topside themes, and this is something that could work in the event that DXY poses a deeper pullback towards the 101.82-101.92 zone.

GBP/USD Four-Hour Price Chart

Chart prepared by James Stanley, GBP/USD on Tradingview

AUD/USD

Aussie is another currency I’m tracking for USD-weakness themes, so if we do see a deeper pullback in DXY there could be interest in bullish themes here. As looked at in the webinar, bearish structure remains so that would first need to rectify to open that door for topside.

At this point the .6750 level is important as this was a prior lower-low. The lower-high after that bounce was around .6770 so this is what buyers would need to push above to break the prior bearish sequence.

AUD/USD Four-Hour Price Chart

Chart prepared by James Stanley, AUD/USD on Tradingview

USD/JPY

USD/JPY has put in an aggressive bullish move. And that stands in stark contrast to last week’s open when weakness continued down to a re-test of the 141.69 level.

But after a week of strength many are already proclaiming that the carry trade is back. I’m dubious of that. While rate cut expectations have gotten pushed back, there’s still wide expectation that the Fed will be cutting rates through next year. As looked at in the webinar, there was a roughly 62% probability of at least 150 bps of cuts into the end of next year.

Those cuts would further compress rates between the US and Japan, which is what drives the carry trade. I think that what we’re seeing is short cover after the aggressive July-August sell-off started to stall in September.

At this point price is testing the 38.2% retracement of that sell-off in the same zone I had looked at in yesterday’s article. There’s still bullish structure and that can’t be argued against – but it does point to the importance of the 150-151.95 zone if buyers can continue to push. Until then, there’s support potential at the 147.18 level of prior resistance, and then around the 145.00 level.

USD/JPY Four-Hour Price Chart

Chart prepared by James Stanley, USD/JPY on Tradingview

USD/JPY Bigger Picture

The 150-151.95 zone is what held the highs in Q4 of 2022 and 2023. It was back in the picture this year as resistance-turned-support. And since the aggressive carry unwind theme took over in July and August, it hasn’t been back in the picture.

But – if buyers can stretch this move, I’m considering that a big area of interest for longer-term carry traders, particularly given the rate cut expectations that remain priced-in, as of this writing.

USD/JPY Weekly Price Chart

Chart prepared by James Stanley, USD/JPY on Tradingview

Gold: There’s the Pullback

Gold held well last week considering the USD-strength. A pullback finally appeared around the time of the webinar and price has already made a fast run at the 2600 level. During the webinar there wasn’t yet evidence that it had cauterized support but that remains of interest for the rest of today and into tomorrow. Below 2600, the 2588 level of prior resistance remains of interest but, notably, there hasn’t been much for pullback since the 2600 resistance inflection at the FOMC rate cut a few weeks ago.

Gold Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist