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US Dollar Price Action Setups Post-CPI: EUR/USD, GBP/USD, USD/JPY

US Dollar Price Action Setups Post-CPI: EUR/USD, GBP/USD, USD/JPY

Talking points about the US dollar:

  • The US dollar pulled back slightly this morning after the March CPI, coming to 8.5% while the core CPI came in at 6.5%.
  • The USD bullish trend has been holding near the resistance level ahead of the release and this morning’s data has brought a slight pullback so far, so far, the bulls have bid. Below I look at the strategy parameters in three of the largest pairs of the US dollar EUR/USD, GBP/USD and USD/JPY.
  • The analysis in the article is based on price movement And chart formations. To learn more about price action or chart patterns, check out DailyFX Education Section.

This morning came the release of CPI figures for the month of March in the markets Once again, the CPI reading came in above expectations. But this time, we’ve crossed the 8% mark with 8.5% printed, which is a new 40-year high.

However, there was a positive side as core CPI, which excludes food and energy, came in slightly below expectations, coming in at 6.5% vs. 6.6% expected.

But inflation is up significantly and the chart below, with a red line all the way down around the Fed’s target, helps show this latter topic.

Core CPI annually since March 2018

CPI since March 2018

The graph was prepared by James Stanley

At this early stage in the matter, that appears to be what market participants are focused on as the way for another massive print has already been set for today, after the White House warned of another elevated inflation reading ahead of today’s data release. The trends for USD strength were already ingrained and we likely see a bit of profit taking after another rise to a new yearly high that was not followed by a strong bullish reaction after the CPI release.

We can see this well built trend on the daily chart below, as the past two trading days produced resistance reversals from the upper side of the ascending channel that is now operating for almost a year.

US dollar daily price chart

US dollar daily price chart

The graph was prepared by James Stanley; US dollar, DXY on Tradingview

The possibility of supporting the US dollar

At this point, pullbacks in the US dollar were relatively shallow including the morning move after the release of the CPI data.

But, given that the US dollar is back in business psychological level At 100 with the fact that there has been very little trend capitulation since the last support test in late March, the price may be due for a pullback.

There is even a somewhat attractive area to look out for, as there was a previous point of resistance from a range created during March trading, and so far, this area has not been retested for support since the upside breakout. There is a more strong support level that was drawn before this area started to run, around 99.62.

Four hour US dollar price chart

Four hour US dollar price chart

The graph was prepared by James Stanley; USD, DXY on TradingView

EUR/USD is still in the main area

The key to the possibility of a breakout of the US dollar is related to the possibility of a collapse of the EUR/USD pair. The euro accounts for 57.6% of DXY’s price, so it only makes sense that the dollar would have a hard time going anywhere without at least some involvement from the euro.

In the EUR/USD, this argument is complicated by the fact that prices have just moved to a key point of long-term support.

From the monthly chart below, we can see a strong showing of support in the current area in 2020. This ultimately led to a massive bounce of more than 1,500 pips as the Fed heated up the money printer during the 2020 and 2021 trading.

But with the tides starting to come back, sellers have already pushed the pair lower to this big support point. This can be a difficult area for sellers to break into.

EUR/USD monthly price chart

EURUSD monthly rate chart

The graph was prepared by James Stanley; EURUSD on Tradingview

EUR/USD in the short term

This long term support does not necessarily cancel out bearish EUR/USD patterns. However, it makes justification more difficult when we have a situation like the one we have now, when prices have jumped below testing support after the recent lower rally.

To get this breakout of support, we will need new sellers to enter the market and if things are already somewhat oversold, we could be in a slump for a while. What could come in handy is a pullback, which could allow short-term downtrend strategies to come back into the system. There is a previous swing support around 1.0960 and then the psychological level of 1.1000, both of which may be of interest for such an approach. A little higher we have a projection of the long-term trend line which is currently expected around 1.1025, and this can be viewed as a third point of a potential high-low resistance for a bearish continuation approach.

EUR/USD 4-hour price chart

Four-hour price chart of the Euro against the US Dollar

The graph was prepared by James Stanley; EURUSD on Tradingview

British Pounds / US Dollars

One pair that hasn’t been shy about its bearish trend lately is GBP/USD.

We encountered a situation similar to the above in the British pound in mid-March, when the pair fell down to the psychological level of 1.3000. This provided a quick saving for the GBP/USD and then the pair rose 300 pips before finally topping at the 1.3300 handle.

Sellers have remained fairly consistent since then, though, and this has led to another retest of the key psychological level. At this point, there has been some bending but no significant breakout, which also indicates that the pair may be oversold and set to pull back before new sellers jump to new lows.

Violent resistance can be looked for pretty close, around the 1.3054 level that turned into support turned into resistance. This price has already been tested and the bulls have yet to pull back, which keeps the door open for a rally to the 1.3100 area and there is a potential swing of resistance around 1.3124 still of interest.

Four hour GBP/USD price chart

British pound to US dollar four hour price chart

The graph was prepared by James Stanley; British Pounds / US Dollars on Tradingview

USD/JPY hit a 20-year high

In the world of bullish US dollar currencies, little has kept the attractiveness of the US dollar / Japanese yen. Looking at the spreads, this makes sense, at this point the pair is pressing on 20-year highs as US interest rates continue to rise as there are little indications of anything similar in Japan.

USD/JPY Monthly Price Chart: 20-Year Highs

US dollar to Japanese yen monthly rate chart

The graph was prepared by James Stanley; US dollar / Japanese yen on Tradingview

This is the carry trade and when it does appear, it can be incredibly impressive. That’s what we were talking about in the first quarter of last year when “deflation trading” started to get priced in and more clearly, this came back into the equation last September when the Federal Open Market Committee started forecasting a rate hike for 2022. I had even had I set it The GBP/JPY was my ‘best trade’ for the fourth quarter of last year On this very basis, six months later these themes are still going strong.

In the USD/JPY pair, we hit a point of interest as the last time the USD/JPY traded in this region, we heard Bank of Japan (BoJ) Kuroda err on the breaks, and that led to some caution The USD/JPY is trading up and around 125.86 watermark high. This is the same thing that helped produce the pullback in the pair a couple of weeks ago but with no signs of the Bank of Japan adapting, the bulls simply offered the pair support while pushing it to new 20-year highs.

Four-Hour US Dollar/Japanese Yen Price Chart

usdjpy four hour price chart

The graph was prepared by James Stanley; USDJPY on Tradingview

USD/JPY could remain attractive for USD continuation scenarios. We have already seen support emerge from the psychological level of 125 this morning after the CPI reading and buyers reacted quickly with some help from the uptrend line.

But – if we see a failure to push a new high, followed by a pullback, then there are two areas that remain of interest for scenarios for a continuation of the bullish trend. Previous swing lower support turned support around 124.15 as a potential point for such an approach.

USD/JPY hourly price chart

usdjpy hourly price chart

The graph was prepared by James Stanley; USDJPY on Tradingview

— written by James StanleyAnd Senior strategist for DailyFX.com

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