US Dollar, NFP, EUR / USD, GBP / USD, USD / CAD Talking Points:
- The US dollar continues to rise after this week’s bullish break above the reversed head and shoulders pattern.
- Tomorrow brings Non-farm payrolls along with the release of Canadian jobs figures, setting up a very interesting phase in USD / CAD.
- The analysis in article is based on price promotion and chart formations. For more information on price action or chart patterns, check out our Finance Prop Education section.
It has been a busy week in the US dollar as the bullish reversal continues. This was in the spotlight during January trading as a number of reverse formations began to set up. Even as the New Year started, the US dollar had bullish potential, as shown by one falling wedge pattern. Falling wedges are indicated by a more aggressive slope of trendline resistance compared to what appears on or around support. These can often appear around market bottoms with oversold conditions, and will often be approached with the aim of bullish reversals.
For more information about the falling wedge, checking out Finance Prop Education
And for much of January, the price action remained at least somewhat indecisive, spinning in both directions; but along the way another formation emerged as a built-in inverted head and shoulders pattern. Likewise, this formation will often be approached with the aim of bullish breakouts, and with the door opened to February trading, that’s exactly what has happened so far. I talked about this at length in the Tuesday webinar, and I had emphasized this scenario in last week’s analyst pick.
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Tomorrow’s calendar brings one of the most followed US data releases with Non-farm Payrolls. This report will be released at the same time as the Canadian jobs figures, yielding a very interesting USD / CAD scenario that we will review later. But – for the US dollar, price promotion has been long and strong, with prices rising to a new high in two months. And with a few major banks revising expectations higher for tomorrow around the NFP report, the bar will be high for USD bulls to continue the pause. But – if they can, there’s an important level around the 92.00 handle that can come into play if / when the breakout spreads.
US dollar eight hour price chart
Chart prepared by James Stanley; USD, DXY on Tradingview
EUR / USD Violates 1.2000 – Can Sellers Turn It Off?
Perhaps one of the surprises this week was how quickly EUR / USD gave up around the 1.2000 handle. When this psychological level came into play as a backlash in September of last year, it led to a strong turnaround that lasted more than a few weeks and was good for nearly 400 pips.
Entering this week, that price loomed ominously below; and there was even a small jump yesterday before that exact price could come into play. But sellers woke up to aggression this morning as the single drove down, EUR / USD broke below 1.2000 and well, at least at the time of writing, hasn’t really stopped.
The complication here would be an oversold situation leading to what could be a big risk with tomorrow’s job reports. But – given the levels that were knocked out, there could be some context for continuation, especially if that news story could help trigger a quick flicker of strength in the pair so that one of these areas of previous support could turn out – as short-term resistance.
EUR / USD daily price chart
Chart prepared by James Stanley; EURUSD on Tradingview
GBP / USD jumps as BoE lowers the potential for negative interest
I had watched a rising GBP / USD wedge formation during Tuesday’s webinar. To be more precise, there were actually two wedges that were viewed – a short term and a long term. The short term wedge has already begun to give way to USD strength, with the pair dropping to a fresh three-week low. But the longer-term wedge has remained unimpeded as the support trendline has yet to be tested.
To find out more about rising wedges and why they are often tracked for bearish reversals, read this article Finance Prop Education
The big change here happened this morning around the Bank of England interest rate decision, on which the BoE took a positive tone and seemingly squashed it the possibility of a short-term transition to a negative interest rate regime. This allowed the pair to jump, with short-term price action able to eliminate some previous lower highs.
At this point, the big question is whether Cable can finally knock out the 1.3750 resistance zone that helped hold the highs for a few weeks before the reversal started showing. Given the BoE’s statement this morning, from a fundamental point of view, Cable’s bullish side could look more attractive if we see USD weakness.
GBP / USD daily price chart
Chart prepared by James Stanley; GBPUSD on Tradingview
USD / CAD loaded for US and Canadian job reports
USD / CAD remains very interesting as there is a similar ‘wedge in a wedge’ background in the pair. However – unlike GBP / USD above, USD / CAD has shown greater development with these formations as the short term wedge was broken last week and the longer term wedge remains in play this morning.
Resistance as taken from the trend line that makes up the top of the wedge saw tests for four consecutive trading days, up until yesterday. Yesterday’s price action pushed like a doji, and this keeps the door open for a morning star formation for today’s price action. That may or will not be confirmed until the daily close, but it does keep the door open for bullish breakout potential in the pair.
The major zone ahead on USD / CAD is the 1.2952-1.3000 zone. The psychological level has come into play several times over the past few years. But so far, there is yet to be a test at or above this level in 2021 trading, leaving the door open to bullish breakout potential, especially with the two jobs reports on the calendar for tomorrow.
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USD / CAD daily price chart
Chart prepared by James Stanley; USDCAD on Tradingview
— Written by James Stanley, Strategist for Finance Prop.com
Get in touch and follow James on Twitter: @Jndkgrf