Dollar Tests a Key Resistance Level as EUR/USD Sits on Support
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Dollar Tests a Key Resistance Level as EUR/USD Sits on Support

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Talking Points:

- The U.S. Dollar has ran-up to test a key resistance level at 101.53; and a sustained-break above this level could signal the return of the bullish-Dollar theme.

- USD-strength is showing vividly in EUR/USD as the pair tests a key support level; and USD/JPY is still congesting on a longer-term basis with continued support at a key region.

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USD Comeback : The U.S. Dollar has started this week off on a rather bullish foot, and this comes after the currency posed a hard reversal on Wednesday of last week. As we opened last week with Fed Chair Janet Yellen's twice-annual Humphrey-Hawkins testimony on the calendar, the potential for a return of the bullish U.S. Dollar up-trend was very much alive. After a near-historic run after the Presidential Election in November, the Greenback spent most of January heading-lower as traders realized gains and tightened-up positions. But as we came-in to February, support began to show and bulls began to return; and as we opened last week with Fed Chair Janet Yellen's two-day Humphrey-Hawkins testimony on the calendar, the opportunity for that trend to extend was very much there.

Day one of that testimony on Tuesday further contributed to the Dollar's gains; but it was the strong inflation print on Wednesday morning that really excited matters, as the Dollar ran-up to a key resistance level at 101.53. This is the 50% retracement of the January retracement; and should price action be able to show a sustained break-above this level, the prospect of the bullish up-trend returning would be quite a bit more attractive.

But that inflation-fueled run-higher on Wednesday morning was short-lived: Just as Chair Yellen began speaking on day two of her Humphrey-Hawkins testimony, the Dollar began to sell-off, and continued to do so into Thursday. Support finally showed at mid-day on Thursday, and since then bulls have returned to drive prices back up to the level where we reversed on Wednesday: This is the 50% retracement of the bearish January move, and should price action be able to pose a sustained break-above this level, continuation prospects could seem considerably more-likely.

Chart prepared by James Stanley

USD/JPY remains subdued

While the U.S. Dollar is testing resistance from last week with legitimate top-side continuation prospects, price action in USD/JPY is quite a bit more subdued at the moment. Last week's high on Wednesday in USD/JPY was unable to break-above the prior swing-high at the end of January (DXY was well-above that point using similar observations). And on this most recent run, the Dollar has already ran-back to resistance while USD/JPY is still well-below those prior highs.

So, while the longer-term trend would still remain as bullish given continued support above this widely-watched region, the prospect of timing may be a bit more elusive as buyers haven't appeared overly-excited about trend continuation, at least just yet. This could make the possibility of another support-check later in the week extremely exciting for longer-term bullish accumulation.

Chart prepared by James Stanley

EUR/USD at Support

One area where that recent up-tick in USD-strength has shown up rather prominently has been against the Euro. The January pull-back in the strong-Dollar theme ran EUR/USD higher by almost 500 pips. But as strength returned in February, EUR/USD began to fall. The reversal on Wednesday of last week took place at the 61.8% Fibonacci retracement of that January move at 1.0527; and with Dollar strength showing back-up rather prominently over the last couple of trading days, EUR/USD has returned right back to this support level. A bit lower at 1.0500 we have a major psychological level and from there down to the 1.0340 13-year low we have a plethora of prior support swings.

Should support hold above 1.0500 in the early portion of this week, this setup could potential become an attractive reversal candidate given EUR/USD's struggles to elicit sellers below 1.0500.

Chart prepared by James Stanley

--- Written by James Stanley , Analyst for DailyFX.com

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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