VOT Research Desk

Market Analytics and Technical Considerations

Technical Outlook for the US Dollar: Bullish

After making a significant move lower the week before, the US dollar bounced last week, raising the possibility that the near-term low is now in play.

Both the EUR/USD and the GBP/USD met resistance before the 1.0500 handle, which can each introduce shift possibility into the scenario.

We first inquired about the USD’s peak just one month ago. That was around the same time that the Greenback displayed a double top formation, which was quickly filled as a new bearish trend began to emerge. Over the past few weeks, bears have been in charge as the huge move of USD strength that lasted all summer has been further priced out.

The main question is whether the bearish trend in the short term has ended, which could allow the bullish trend to resume its upward trajectory in the larger picture.

The candle that burned on Tuesday had an extended wick, which serves as a possible indicator of a low. That shows that bulls reacted, and the fact that it led to a series of higher lows into the week’s end shows that bullish expectation is getting stronger.

However, bulls didn’t exactly get away with it because short-term resistance, which is centered around the 107.27 level I examined on Thursday, continued to hold the highs.

The post from last week conveys uncertainty. It’s not quite a doji, but it’s probably wider than a spinning top would be. However, the underside wick with a bullish close demonstrates how the Tuesday bounce helped to temporarily halt the decline as buyers began to exert a greater amount of control.

Naturally, continuation is the big question, and for bulls to continue, they will need to break above that resistance zone. After that, topside levels at 107.79 or 108.43 will come into play.

USD SHORTER-TERM

In our analysis of the US dollar on Thursday, I emphasized the need to break through the short-term resistance at 107.27 for continuation scenarios. Before the week’s over, that reality remained, and bulls hadn’t yet tried above opposition. But logically, that door is still open because price made a series of higher lows, which contributed to the formation of an ascending triangle that still has the potential for a short-term bullish breakout.

Naturally, the EUR/USD pair will undoubtedly play a significant role in the outcome, as has been the focus of these discussions lately; I’ll get into that in a moment.

EUR/USD

will likely require a top if the US dollar has reached its lowest point. And just like with the USD above, that’s still not clear because the bears didn’t exactly do what was needed to open the door to bearish trend potential.

However, there is the possibility of a turn around, and bearish themes could emerge as a result. On Friday, we investigated the issue and emphasized consolidation around the major level of 1.0350.That price played a role in establishing support in 2017, but it returned as a significant level this summer, serving as support in May and June before acting as resistance in August.

The body of the candle from the previous week is located at that level, and the extended wicks on either side create a doji shape.

EUR/USD SHORTER-TERM The EUR/USD

pair fluctuated a lot in the past week, resulting in the formation of a symmetrical triangle with no directional bias .Nevertheless, it can be considered a bull pennant formation when combined with the bullish move that triggered its formation. Usually, this is done with the intention of bullish continuation. However, even that may have some repercussions for bears.

If prices do make a topside breakout, the 1.0500 level is just overhead, so bears who are planning reversal strategies might be interested in this area.

On the bearish side, the Fibonacci level of 1.0282 is still important because it helped set the low last week on Monday and Tuesday: A break underneath that denotes a new week after week low and that can be the new lower-low that bears are searching for to set off into negative situations.

The GBP/USD SHORTER-TERM

1.2000 resistance inflection prompted a support test at the 1.1760 level on Thursday. That helped hold the lows until the end of the week, so bears will need to be patient, similar to EUR/USD above, since there isn’t quite a lower low to go with that possible lower high. However, a break below 1.1760 could open that door, and the 1.1500 level is the next support level below that.

USD/CAD

We had examined USD/CAD on Wednesday and pointed to a crucial area of support at the psychological level of 1.3250, which was holding the pair’s lows. As the price climbed back above the 1.3350 level, that resulted in strength; and bulls pushed up to a new high after a pullback that ended with a print at a higher low.

This allows for USD/CAD bullish trends to continue. At the 1.3465–1.3500 region, there is a significant overhead area of resistance. This was support in October and early November, so the next push up to resistance in that region could be looked at as potential for a pullback. After that, higher-lower support potential comes back into play.

USD/JPY USD/JPY

 is still of great interest in terms of the recovery of the US dollar. One of the most aggressive pairs on the bullish USD trend was USD/JPY, helped along by a really weak yen caused by the Bank of Japan’s easy money policies.

But as we saw on Thursday, when carry trades end, the move can be aggressive. Given that rate themes are close by, this is what has been happening as the USD sell-off has held FX markets hostage.

The short-term setup in USD/JPY is very similar to the setup in DXY that was discussed earlier, so the question is now whether that bottom has been reached. The four-hour chart below shows a similar build of short-term resistance at 140.80, which is very similar to the 107.27 level.