Technical Analysis

Dollar slightly lower going into European morning trade

In the past two weeks, the dollar lost some notable ground but recovered a bit recently to keep its title as the favourite to maintain its reign at the top among major currencies heading towards year-end. A lot of that will depend on the Fed and the rates guidance offered, which makes today one of the most povital FOMC meetings over the past few months.

All the talk is about whether or not the Fed will pivot, and that is the main focus going into the key risk event later today. For now though, the dollar is holding in a decent spot – even if it is slightly lower on the day so far. Let’s take a look at the charts.

In the case of USD/JPY, the volatile swings are still persisting after another round of intervention by Japan authorities last month. That said, the pair still remains rather caught in between 145 and 150 at the moment – awaiting a firm break on either side for buyers and sellers to exert their will on price action.

Meanwhile, EUR/USD saw a run up back above parity last week but the upside move stalled upon testing the 100-day moving average (red line). The dollar steadied after and we are seeing the pair retreat lower again, with the ECB playing it straight last week. It is now down to the Fed to determine if there is appetite for the dollar to sustain its advance against the euro – so long as the policy status quo remains.

In the case of GBP/USD, the pair looked to come up for air in a push back above 1.1500 last week but the gains were not extensive enough to contest key technical levels on the daily chart. Buyers ran out of steam above 1.1600 and sellers took the opportunity to wrestle back some near-term control, where we are seeing price action settle at the moment.

The bounces in and around the 100 (red line) and 200-hour (blue line) moving averages show how price action is developing and it will take a break on either side for the pair to really gather any momentum post-Fed this week. A break above the former will allow for a potential push towards the 100-day moving average at 1.1713 while a break below the latter is likely to set up another drop towards 1.1200 next for cable.

AUD/USD is another chart to be wary about after running back up towards 0.6500 amid the dollar’s sluggishness in the latter stages of last month. Sellers held at the key level before the RBA’s lack of impetus cemented price action below that and we are seeing a bit of a tussle in between the key hourly moving averages this week.

Similar to cable, this is where buyers and sellers are doing battle now and we will have to see how the post-Fed narrative impacts price action later today.

If buyers have reason enough to climb above the 100-hour moving average (red line) and push past 0.6500, there is a strong case for a surging correction to the upside. However, break below the 200-hour moving average (blue line) and we can start to look towards another potential test of 0.6200 again moving forward.

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