US Dollar Price Action Settings: EUR / USD, GBP / USD, USD / CAD, USD / JPY

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It is Fed week and the US dollar remains in focus after last week’s CPI report. Perhaps the most disconcerting part of that report was the first Core CPI hike in months, which dashed some of the remaining hopes that inflation and, in turn, the FOMC hawkish stance may have already peaked. The Fed remains aggressive as inflation remains high and, in the words of former FOMC Vice President Richard Clarida, the Fed is a single mandate operation at this point with inflation firmly in its sights.

That said, the Fed isn’t the only central bank taking a hawkish approach. The ECB has recently increased by 75 basis points and the Bank of England also continues to talk about rate hikes. One of the few banks that does not pursue a more aggressive monetary policy is the Bank of Japan, and the yen has remained a preferred funding currency for the carry trade as US rates continued their slope. The Fed perhaps has the unique ability to rise even further, as growth forecasts are not as dire as they are showing in Europe, and this has helped this scenario which has amounted to a significant run of USD strength since many developed currencies linger near multi-decade lows.

American dollar

The US dollar took a big jump from support last week following Tuesday’s CPI report. The price moved back to the psychological level of 110 which held the highs until Friday’s trading, after which a quick breakout attempt found resistance at the same level of 110.24 that had held the highs the week before.

This creates a potential double top that will remain as a possibility until the maximum is eliminated, thus nullifying the potential formation. In the short term, the bulls have held control and the door remains open for a potential breakout. There is potential for lower support around the previous resistance, taken from the long-term Fibonacci level at 109.14 up to the high of the July swing around the 109.27 level.

US dollar four-hour price chart

Chart prepared by James Stanley; USD, DXY on Tradingview

USD in the short term

In the short term, the ascending triangle is now in question as the price has slipped below the bullish trend line connecting last week’s swing low to last night’s swing low. This can keep the door open for short-term pullback themes. There is a short-term support point around the 109.50 level but on the bigger picture it is the same interest zone at 109.14-109.27 looming.

US dollar 30-minute chart

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Chart prepared by James Stanley; USD, DXY on Tradingview

USD Larger picture

From the daily chart we can see that DXY is having a hard time above the 110.00 level. This is an important psychological level and while we have had a daily close above this price, there has been little continuation and, more recently, buyers have not been able to push for a lasting move above the large figure. . Last week’s inflation print – although it evoked a massive move, the bulls failed to break out of the 110 level.

Hence, this does not necessarily mean that the trend is over or over; but it does mean that the issue will likely need additional motivation and may have some relationship to EUR / USD which I will explore below.

In USD, with resistance at a key point, which keeps the door open for pullbacks entering the FOMC. And if the Fed continues to be louder in its aggression, this could be the motivation the bulls need to finally push above the 110 level, after which it can become a potential higher-low support.

To invalidate the bullish theme, a break in the bullish trend line would open that door. I projected it around a previous support level turned resistance around 106.81.

US dollar daily chart

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Chart prepared by James Stanley; USD, DXY on Tradingview

EUR / USD

The Euro remains in a terrible position, but that’s nothing new at this point. The single currency has been continually pummeled by the US dollar, as evidenced by the downward trend that has been going on for fifteen months at this point.

Perhaps even more puzzling, even though the ECB has shifted to a much more aggressive mode, EUR / USD has done little in the way of responding, simply hovering around the same parity that has been in play for a couple of months. And as I have warned several times, a level of that nature should take some time to collapse. In 2002, when EUR / USD was rising as the euro was gaining global acceptance, it took EUR / USD around six months to leave parity behind.

For this most recent iteration, parity began to come back into play in July and there was moderation in the sell-off, albeit slightly. There has been a construction of a falling wedge formation as the bears have shown trepidation around parity. This keeps the door open to withdrawal potential, particularly if the Fed is able to maneuver an accommodating presentation of an otherwise very hawkish message.

Interesting too – as last week’s CPI slammed EUR / USD below the big figure, notice what happened next – as a support build showed around the .9950 level. From the weekly chart, this equates to a possible higher low after a higher high before the CPI release.

EUR / USD daily chart

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Chart prepared by James Stanley; EURUSD on Tradingview

GBP / USD

The cable was besieged last week as the GBP / USD entered a bearish vortex along with a new 37-year low. There is a large residual support playing off the previous March 2020 swing low which is around the 1.1414 level. This can keep the door open for a rebound up to a short-term resistance, such as the 1.1500 or 1.1560 levels; and if buyers can stretch a little further, there is also a resistance potential at 1.1600 and then 1.1700 psychological levels.

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GBP / USD weekly price chart

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Chart prepared by James Stanley; GBPUSD on Tradingview

USD / CAD

USD / CAD hit a new 22-month high this morning, testing the 50% retracement from the 2020-2021 main move for the first time since the low was set last year. There has already been a drain from that level with an exposed upper wick and, in the short term, there is support potential around the previous high swing resistance, taken from the 1.3224 level. If a deeper pullback occurs, the same 1.3000 resistance zone turned support remains a point of interest for longer-term approaches.

USD / CAD weekly price chart

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Chart prepared by James Stanley; USDCAD on Tradingview

USD / JPY

USD / JPY is trading in a range after a failed resistance run last week. The psychological 145 level remains the benchmark above the current price action as this price has yet to trade despite two close calls. Despite rampant speculation, there hasn’t been any sign of any change at the Bank of Japan yet, but we’ll hear more later this week when the BoJ meets for a rate decision later on Wednesday (Thursday morning in Asia).

In USD / JPY, rate hike themes may remain particularly attractive given the prospect of a continuation of the carry trade. There is potential for support around the psychological level of 142.50 and below that, 141.60 comes into the picture. If that breaks down, however, there may be some long-term interest as this would highlight a double top formation from the two failed psychological-level series of 145.00, so 141.60 is great for USD / JPY trending themes.

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USD / JPY four-hour price chart

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Chart prepared by James Stanley; USDJPY on Tradingview

— Written by James Stanley, Senior Strategist, DailyFX.com and Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX

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