USD Q4 Pop: EUR/USD, USD/JPY, Gold, US Dollar Price Action Setups

US Dollar Talking Points:

• It’s been a strong start to Q4 for the US Dollar, standing in stark contrast to last quarter’s weakness in DXY.
• A pullback in EUR/USD has been a large source of that strength and the European Central Bank is widely-expected to cut rates again on Thursday. But perhaps the bigger question is whether they hint that more softening may be in store near-term.
• The video below is an archived webinar, and you’re welcome to join the next live webinar: Click here for registration information.

The US Dollar has continued its bullish run after finding resistance at a zone of Fibonacci levels yesterday. From the daily chart below, we can see that confluent zone running from 103.32-103.46 which has, so far, held the highs in early-trade this week.

US Dollar Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

The complication with USD at this point is just how quickly that bullish move has priced-in. It was a grinding month of September as sellers were stalled and as the above chart denotes, the change in Q4 has been fast and aggressive.

Ideally, trends will have a bit of back-and-forth on the way up and at this point there hasn’t been much ‘back’ in the DXY rally in Q4. Even this morning, a pullback was cut short before a re-test of the 103.00 level, with the daily low currently showing at 103.03. This is similar to EUR/USD’s high last Tuesday during the webinar holding 2.7 pips inside of the 1.1000 handle that sellers didn’t allow for re-test.

Nonetheless, the challenge now in DXY is chasing a well-developed move so it’s up to the trader as to whether they want to take on that risk or wait for a pullback, which would be a risk of missing out on continuation if this morning’s low does end up holding as the higher-low.

For deeper support, the 103.00 level is somewhat obvious as this held the highs last week. But there’s also the 102.55 level that was resistance into last week which, as yet, hasn’t been tested for support. And there’s a shorter-term zone running from 102.69-102.72.

US Dollar Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD

Going along with that fast reversion in USD has been a mirror image of that move in EUR/USD.

The pair was very strong in the first two months of Q3 trade, eventually finding resistance at the 1.1200 handle. That’s the level that bulls couldn’t break through, with a final failure highlighting capitulation after the test of the long-term Fibonacci level at 1.1212. Since then, bears have hit this really hard and like the USD above, the challenge is chasing an already developed trend.

This doesn’t necessarily denote attractiveness behind bullish reversal potential, as there are probably more attractive venues for USD-weakness, if that does show. But in EUR/USD, this could be enough to back bears off the offer long enough to allow for a pullback which could further work towards bigger picture bearish trends. There’s currently a case of RSI divergence on the four-hour chart to go along with a falling wedge formation that hasn’t yet been invalidated in the pair.

As shown in the webinar there’s resistance potential at the Fibonacci level of 1.0943 which, if it holds well, would denote another lower-high below the 1.0950 price that held highs last Friday. And if we do see a deeper pullback develop in the USD, towards the 102.25 level in DXY, there’s a pathway for a 1.1000 re-test in the pair.

Notably, the European Central Bank is widely-expected to cut rates again this month, and when they cut last month a rate cut rally developed shortly after with price jumping back to the 1.1200 level.

EUR/USD Four-Hour Price Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

USD/JPY

USD/JPY has shown a turn before testing the 150.00 psychological level and in the video, I talked about the fundamental backdrop in the pair as the US is expected to see more rate cuts through 2025 trade. This would further compress rate differentials in the USD/JPY pair, which would provide further motivation for longer-term carry unwind. As we’ve seen rate cut expectations around the FOMC get pushed back from 2024 and into 2025, a strong rally has developed in the pair, but I would be cautious of proclaiming the return of the carry trade.

Overhead is a major zone of resistance in USD/JPY with 150.00, 150.77 and 151.95 all showing as prominent resistance levels in the longer-term backdrop of the pair.

USD/JPY Daily Price Chart

Chart prepared by James Stanley, USD/JPY on Tradingview

Gold

As global central banks move towards easing, even with inflation in the US remaining high via Core PCE and Core CPI, bulls have made a strong push in gold and that’s a statement that’s been relevant for much of 2024 trade.

I talked about gold at length in last week’s webinar while looking at higher-low support potential and last Thursday’s CPI print showed this well. In the article, I even titled that section as ‘there’s the pullback,’ and, a week later, that was it, with another push on Thursday. Despite US CPI coming out above expectation and rate cut expectations nudging into 2025, gold bulls have continued to respond with strength to pullbacks and last Thursday was no different.

There was even an intra-day show of higher-low support at 2616.96, after which a strong move developed that saw the resistance side of a bull flag get tested.

As I cautioned on Friday, chasing such moves can be dangerous and since then we’ve seen a bit of continued stall around those highs. Chasing at highs isn’t exactly great strategy unless the trader has a risk-defined way of incorporating breakouts and for many traders, ‘breakout trading’ can simply be excuse to chase fresh highs and just hope that the move continues.

Instead, like last week, waiting for pullbacks and reading price action around those levels can be key. Last week’s low held at the post-FOMC breakout swing low of 2602.57. Now with another extension in the bullish move, there’s higher-low support potential at 2650 that remains of interest.

And as far as motive, while gold is often considered to be the ‘anti dollar,’ the USD is merely a composite of underlying currencies, with 57.6% allocated towards the Euro. So it should come as no surprise that last month’s ECB rate cut brought breakout from 2530 and bulls haven’t really looked back to that price since, with the corresponding higher-low showing at 2550 after the FOMC rate cut a week later.

Gold Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist