US Dollar, EUR/USD, GBP/USD, USD/CAD Talking Points:
- The US Dollar will likely remain in the spotlight for the early portion of this week as CPI numbers from the month of July are due to be released tomorrow morning at 8:30 AM ET.
- Last month saw Core CPI remain above the Fed’s 2% target, complicating the bank’s move towards a larger dovish shift in policy. The expectation for tomorrow is for another 2.1% print on Core CPI to go along with a 1.7% expectation for headline CPI.
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US Dollar in Focus Ahead of CPI Release
Tomorrow morning brings the release of CPI numbers from the month of July and this is the first release of that data since the rather surprising print at 2.1% for core CPI last month. This complicated the Fed’s rate cut plans with core inflation remaining above target and was likely at least part of the reason the FOMC hesitated to adopt a more aggressive dovish stance. The big question around tomorrow – where will CPI come in? The expectation is for another 2.1% print for Core CPI to go along with an expectation for 1.7% on headline CPI. But, if this prints under expectations recent themes of USD-weakness could get considerable focus, and this could put even more attention on the recent bullish breakout in Gold.
Below, I parse through a series of setups around the US Dollar.
EUR/USD ‘Stuck’ in Key Price Zone
The early month dramatics in EUR/USD have calmed over the past week. As that burst of USD-weakness showed up on the back of additional tariffs on China (less than 24 hours after FOMC), EUR/USD burst up from fresh two-year-lows to run all the way up to a key zone on the chart that runs from 1.1187-1.1212. Price action has continued to meander within this range over the past week, setting up for a scenario that could break either-way.
Reading between the lines – prices have built a short-term bearish channel within this resistance zone. From shorter-term vantage points, it could be approached as a bull flag scenario, and for those looking at breakdown scenarios in the US Dollar, this could remain of interest.
EUR/USD Two-Hour Price Chart
Taking a step back to the Daily chart, however, can make this a bit more attractive from a bearish perspective. The continued stall at this key zone of prior support keeps the door open for short-side swings; and this could mesh well with those looking for a return of USD-strength around tomorrow’s CPI release.
EUR/USD Daily Price Chart
GBP/USD: Cable Smashed, Catches Mercy Bid Above 1.2000
It’s been a brutal showing in the British Pound over the past couple of months, and that theme continued last week as the pair pushed down to yet another fresh two-year-low. Prices came perilously close to the 1.2000 level before catching a bit of support; and that support has since held into this week’s open.
Given the aggressive bearishness that’s been a part of GBP for awhile now, and reversal stances could be difficult to justify. Perhaps a relief rally does show from deep oversold conditions but, in the aim of looking for USD-weakness, there are likely more attractive options for working with that theme. Case-in-point, when the Dollar broke down after FOMC earlier this month and EUR/USD pushed up to fresh two-week-highs, the corresponding move in Cable was shallower as sellers remained hawkish on the offer to further restrain the bounce.
This could make lower-high resistance in the pair as an attractive scenario to follow over the next few days.
GBP/USD Two-Hour Price Chart
USD/CAD Carries Reversal Potential for USD-Weakness Scenarios
For those looking at a continuation of USD-weakness, USD/CAD remains of interest. The pair was in a stark bearish trend through June trade as a combination of a more-dovish Fed and a stronger Canadian Dollar on the back of higher-than-expected inflation pushed the pair down to fresh 2019 lows. But that bearish theme began to slow ahead of the 1.3000 level, and after two weeks of grind in mid-July, a bullish reversal began to take hold. Buyers rode the wave all the way above 1.3300 when the pair began to show symptoms of topping-out last week. A late week retreat back to the 1.3200 handle found bids, and this has so far held up as support through this week’s open.
For those looking at bigger picture themes of USD-weakness, the short-side of USD/CAD can remain as interesting, looking for a deeper break down towards 1.3100 and, perhaps even, the 1.3000 level.
USD/CAD Eight-Hour Price Chart
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.
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— Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX