US Dollar Technical Forecast: Neutral
- It was a relatively quiet week for the USD, with the bid being pushed by threats of escalating tensions on the Ukrainian border.
- At this point it appears that a very-hawkish Fed is well priced-in to the USD but the prospect of greater conflict in Europe can keep flows coming into the currency. If tensions de-escalate USD weakness could come back, but that’s an unpredictable factor at the moment and thusly the forecast will be set to neutral. There may, however, be favorable themes of both USD strength and/or weakness in the four major pairs looked at below.
- The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
It was a busy week in the headlines but if you’re looking at the weekly chart of the USD, you might think that was all quiet on the Eastern front. That, however, would be deceiving as the doji that’s showing on the weekly USD chart doesn’t align with the sell-off that showed in equities or the leap in Gold prices.
This does, however, highlight just how busy price action has been over the past few weeks, with USD reversing a strong bullish trend ahead of the February open and this week appearing to be some element of digestion of that. And, in my opinion, this also takes on a similar feel as Gold, where the fundamental tides appear to be at least somewhat bearish, with the exception of that possibility for conflict, which has helped to keep the bid supported in the USD while Gold has punched up to a fresh high.
The weekly chart of USD has continued to hold above a bullish trendline, which had come into play two weeks ago. But the doji printing after that inflection highlights indecision as bulls were unable to continue the move. There may be an observable bias shorter-term, which I’ll look at in the next section.
US Dollar Weekly Price Chart
USD Shorter-Term Bullish Prospects
Despite the slowing price action this week, there was a technical item that popped up to close the period when the daily chart of USD put in a morning star pattern. This is a bullish reversal pattern and is most attractive at the bottom of a down-trend, which is not the situation here. But – this three-day-reversal pattern could still be highlighting a possible topside run, particularly if conflict remains the key driver here.
The big levels to watch on that side are 96.47 and 96.94, with a breach of the former level amounting to a fresh two-week-high.
US Dollar Daily Price Chart
EUR/USD in a Dicey Range
If the USD is going to put in a directional move it’s likely going to need some participation from the Euro. But, after putting in a strong trend down in the second-half of January and a strong trend up in the first part of February, we find price action in somewhat of an awkward state of inertia. There may be some motive to play between the cracks but realistically there’s not much for a directional bias that can be gleamed from this sloppy price action as we are, in essence, holding near the middle of the recent range.
From a longer-term basis there may be a more justifiable case for strength, given the prolonged downtrend that’s now been stopped in its tracks for a few weeks. This can fit with the recent higher-high even as bulls pulled out before a test of the 1.1500 psychological level, but even that is incorporating quite a bit of projection.
The levels to watch in EUR/USD are resistance from 1.1448-1.1500 and support from 1.1187-1.1212.
EUR/USD Daily Price Chart
GBP/USD does still retain some bullish potential and support, so far, has held above the 1.3500 psychological level. The disconcerting part here is that it’s been that way for a couple of weeks now and still, buyers haven’t been able to string together much of anything. When this takes place, when the door is seemingly open to strength that never shows, this is often an attractive environment to start looking for things to go the other way, and in GBP/USD, that would mean bearish price action.
The level to watch for that theme would be the 1.3500 psychological level, which came back into play this week. If bears can force a daily candle to close through that level next week, the door could quickly re-open on the short side. On the long side, bulls will want to see a poke through the 1.3650 level which would then expose the 1.3750 psychological level 100 pips above.
GBP/USD Weekly Price Chart
I remain bullish on AUD/USD longer-term and this is probably one of the more enticing short-USD candidates at the moment. There’s been continued development of the setup that I highlighted two weeks ago.
The pair has held the .7000 big figure as support and a falling wedge formation has built on the weekly chart. Buyers pushed up for a trendline test but were rebuked this week, keeping the door open for a breakout into next week.
The level of note here is .7250, which is a psychological level that also helped to mark the February swing-high. A breach of that keeps the door open for the bigger-picture bullish reversal in the pair.
AUD/USD Weekly Price Chart
I’m going to work backwards here as there’s a range that remains in-play, which has been incredibly clean, but there may be something more important showing on the longer-term chart that I’ll get into after.
Near-term, the range remains strong in USD/CAD with continued support at the same 2622-2672 zone that I’ve been following throughout last year. Prices are now nearing the resistance side of that range, and that can keep the door open for near-term mean reversion strategies.
USD/CAD Four-Hour Price Chart
USD/CAD on a longer-term basis looks more prone to bullish breakouts to me. Prices have repeatedly beat that support zone with buyers pushing right back for the past three weeks. So, to couple with the range looked at above, a breach of resistance around 1.2800 could open the door for breakouts while also nullifying the mean-reversion strategy investigated on the shorter-term chart.
USD/CAD Weekly Price Chart
Chart prepared by James Stanley; USDCAD on Tradingview
— Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX