Forex: Price Action Setups for the US Dollar (Pairs): EUR/USD, GBP/USD, USD/CAD, and USD/JPY

Oct 6, 2022
VOT Research Desk

Key News – Insights and Analysis

Yesterday, the US dollar bounced back from a crucial area of support, serving as support in USD/CAD and as psychological levels of resistance in EUR/USD, GBP/USD, and USD/JPY.

The Non-farm Payrolls report that will be out tomorrow will continue to be the primary driver for this week. Along with the unemployment rate, the Average Hourly Earnings metric will be the primary focus for NFP.

We inquired yesterday whether the USD had reached its peak. Also, as I said, I thought it was far too early to make such a decision because the dollar had just reached a new high on Wednesday. It is truly amazing how quickly sentiment can be changed by price action. We evaluated out a few areas of key support in the US dollar, and these were especially taken from the resistance that was in place a few weeks earlier.DXY surged because GBP accounts for 11.9% of DXY when the British pound plummeted and GBP/USD spiraled. Therefore, what appeared to be a significant reversal was really rooted in recovery movements in EUR/USD and, to a much greater extent,

GBP/USD in View

However, EUR/USD was making a move on the parity level, GBP/USD was advancing toward the 1.1500 area of resistance, and the USD was tip-toeing down to its support zone at 110.00.At the round numbers, there were inflections, which contributed to the Dollar’s rebound, which is linked to sell-offs in EUR/USD and GBP/USD.

The Non-farm Payrolls data for the month of September will be released tomorrow, which will be the next major driver for the US Dollar. The question of whether or not the Federal Reserve is on the verge of making some kind of policy shift is the primary focus of the market.

As a result, data have been scrutinized for clues to a slowdown that could signal a Fed softening. In addition, the central bank remains motivated to keep raising interest rates until employment, the other mandate, begins to come under pressure, and inflation remains brisk near 40-year highs.

Given how much the Fed has already raised rates and how long it will take for those increases to take effect, it might even be a valid argument to assert that the Fed is focusing more on employment than inflation at this point. The bank is likely to reconsider its belief that rate hikes are beginning to have a negative impact on the American economy in light of signs of weakness in the labor market. Additionally, there is still a significant amount of time for the markets to price in anticipation of the subsequent FOMC rate decision, which is scheduled for November 2-4.

The USD Support has emerged from a previously active area of resistance just prior to the September FOMC rate decision. This is where the psychological level of 110 is located, and it played a role in reversing the rapid and severe sell-off that had begun after the USD reached a new high on Wednesday. As we ascertained and shared on Tuesday, that sell-off was looking more like a pullback than a reversal given how strong the trend was on the way up. However, given the quarter’s end, there could be some of that dynamic in play.

Price has since risen back to support around the 111.78 area, which was a prior area of interest. In addition, in the short term, this pattern resembles an ascending triangle, which may keep the door open for short-term bullish breakouts in the direct USD- Near term Take a look at the ascending triangle. The highest point over the past two days has been 111.78, and just above that is a place that used to be pretty messy. This could make short-term breakouts more difficult, but if bulls can make a new higher high, another area of previous support around the 112.58 level will be their next point of resistance.

EUR/USD experienced a rally at the beginning of Q4 up until the parity level was reached. In addition, We have discussed this price extensively in the pair: It really matters a lot.

However, for this iteration, EUR/USD was unable to even test parity because the high on the majority of feeds was.99997, which is just three tenths of a pip below the big number. This was three pipettes short of the parity handle, which is one tenth of a pip. However, given the reaction, we can still see where the level had an impact without actually coming into place.

Think about it: Are you optimistic about the prospects for continuation if a stretched trend reaches a level like parity and the price is just one pip below. Well, others probably don’t either, so price action can shift around important psychological levels.

Prices in EUR/USD have retreated to the.9835 area, where they previously found support at prior resistance. That resulted in a rebound to a possible lower high at.9927. If the price can break below the.9835 support, we would have a new lower high and lower low, pointing to a return to the.9750 support level.

Is the GBP/USD recovery on track?

It’s always hard to say, but the recent price action suggests that the 1.1500 level was a big deal in GBP/USD because price action has been prone to trend reversals since it was established.

A new lower-low and a return to bearish price action below the 1.1210 level indicate a move toward the 1.1000-1.1019 region.

USD/CAD Another illustration of a significant psychological level having a significant impact on price action can be found in USD/CAD, where a bounce occurred at the 1.3500 level. A bullish push into the longer-term trend is followed by a bounce at a key area in this setup, which is very similar to the DXY setup discussed above.

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The absence of ascending triangles in USD/CAD is, in our opinion, the primary distinction between DXY and USD/CAD. Since there is not the same clear line of resistance as in DXY,. we would be a little more cautious here. However, a pivotal swing level just above, at or around 1.3730, is active and indicates a near-term higher high. Higher-low support could be sought at the 1.3652 Fibonacci level after that. That kind of change could bring the swing high of 1.3833 back into play.

Regarding USD/JPY This situation continues to be difficult for us because it still appears to be a game of cat and mouse. The BoJ has defended the 145.00 level, which is now considered the USD/JPY- Line in the sand, under the direction of the Finance Ministry. As a result, that has remained a fairly constant source of opposition ever since the intervention.

So, looking for topside breakouts basically means either expecting the BoJ to change their stance, which hasn’t happened, or expecting something to happen in Japan that makes it impossible for them to defend that line in the sand. Additionally, despite the Bank of Japan’s enormous balance sheet, it is unclear whether the central bank will abandon its yield curve control strategy, which does not appear likely.

Therefore, we find that the pair’s topside is unattractive because, in essence, it anticipates Japan breaking, which I do not anticipate.

However, the underside of the pair is not much better because the carry is still skewed heavily to the long side of the USD and keeping open positions in the pair could continue to be costly. Long-term shorts are dissuaded by this, and as a result, We can’t think of a context in which that scenario would be appealing except for a change at the Fed or a massive risk aversion that causes Yen-shorts to cover.

As we evaluated on Tuesday, when the pair’s long side, which is still supported by the carry, dips to support, it may become attractive once more. Later on Tuesday, we experienced one of these moves, with prices falling to support at 143.50 before immediately rising to the 145.00 level. Until something changes, it would appear that patience is the way to go in this situation.

Moving Average View – Exponentials (Daily)