EURUSD, GBPUSD, US Dollar Talking Points:
– The US Dollar is spiking-higher this morning, and this has led to support tests in both EUR/USD and GBP/USD as both pairs are threatening fresh bearish breakouts. But are these scenarios bear traps? Tomorrow marks the start of the Good Friday and Easter holidays: European markets will remain closed until next Tuesday and US markets will shut tomorrow, making this as a suspicious time for fresh breakouts in themes that have been brewing for the past few months.
– GBP/USD is holding support in a descending triangle formation, but the plot is thicker in EUR/USD where the pair has pushed below a bullish channel that had made a bear flag formation. Price action is testing the 1.1250 level, and longer-term range support is approximately 40 pips below current prices, making for challenging risk-reward ratios if using the recent swing-high for stop placement, approximately 80 pips away from current spot prices in EUR/USD.
– DailyFX Forecasts are published on a variety of currencies such as the US Dollar or the Euroand are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.
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EUR/USD, GBP/USD Re-Engage Support as USD Spikes Ahead of Easter Holiday
Tomorrow marks Good Friday, meaning many western markets will remain closed, and Monday brings Easter and will see European markets remain on holiday. But ahead of the long weekend FX markets are showing as much excitement as they have so far in Q2, marked by a strong spike of strength in the US Dollar. This has helped EUR/USD to push-lower, re-testing the 1.1250 level that’s taken on greater importance of recent; and even GBP/USD is threatening to break its recent slumber as prices have pushed closer to the support zone around the 1.3000 psychological level.
The big question around the US Dollar is whether bulls can continue to push. The ascending triangle formation in the currency has been building for the past six months; with resistance showing at 97.71 and support taken from a bullish trend-line that originated in September of last year. The last resistance test in the US Dollar came in March, just after the ECB rate decision to announce a fresh round of TLTRO’s; and since then, buyers have continually shied away from re-tests of those highs, leading to a short-term bearish trend-line inside of the longer-term formation (shown in orange on the below chart).
US Dollar Eight-Hour Price Chart
Chart prepared by James Stanley
EUR/USD Pushes Down to 1.1250: Flag Break for Continuation or Bear Trap?
Going along with that spike of USD strength is a bearish move in EUR/USD as the pair has pushed below the bullish channel that’s been building over the past couple of weeks. The 1.1325 resistance area has proven too rigid for bulls to take-out, at least at this point, and prices have reverted back to the psychological level of 1.1250.
This can make the prospect of bearish continuation look a bit more attractive, but sellers should be careful here, as the six-month-range in EUR/USD has yet to give way, and the support side of this zone has caught numerous inflections already. Which would likely mean that traders would look to initial targets around-or-inside of this support, thereby limiting profit potential on initial entries, and making the prospect of risk-reward on bearish continuation a difficult challenge. Stops above that batch of resistance would amount to approximately 80 pips of risk, while a trip down to 1.1212 would allow for roughly 40 pips of profit potential.
Given that a long weekend is ahead in which European markets will remain closed through next Tuesday, and this could be a difficult time to chase a fresh theme in a widely-watched market, particularly if taken-on with a lackluster risk-reward ratio.
EUR/USD Four-Hour Price Chart
Chart prepared by James Stanley
GBP/USD Dances on Support Zone
Prices in GBP/USD have reverted back to the support zone that’s held the lows for the past couple of months. The area of support from 1.2960-1.3000 has seen multiple tests during this period, and this has been coupled with a descending trend-line sitting atop price action over the past month, making for a descending triangle formation in the pair.
This formation will often be approached in a bearish manner, and I looked into that strategy in this week’s FX setups, plotting for a move down to support within the formation and, perhaps even, a break-below.
But, as mentioned above – the backdrop here is of note as a long weekend is ahead: Liquidity is generally lackluster during such periods, and this could lead to a challenging environment to plot for fresh breakouts and the establishment of new trends, particularly in very large markets like EUR/USD or GBP/USD in which themes have been building for months. So, for the next few days, beware the bear trap potential in both EUR/USD and GBP/USD.
GBP/USD Four-Hour Price Chart
Chart prepared by James Stanley
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer a plethora of resources on 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.
Forex Trading Resources
DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.
If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.
— Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX