US Dollar Talking Points:
- After a sell-off to start December, a strong rally developed in the US Dollar after the release of Non-Farm Payrolls data.
- Is the Friday move but a blip in a bearish radar, or the start of a new trend in the US currency?
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US Dollar Rallies After NFP
The week closed with a bang for the US Dollar as a blowout NFP report elicited a short-squeeze scenario in the US currency. After the Dollar spent the first four trading days of December selling off, giving the appearance of an oversold scenario as looked at in the Thursday webinar, an NFP print of +266k brought bulls to the bid and the Dollar shot-higher in a very quick and aggressive fashion. The move ran again an hour-and-a-half later when U of Mich Consumer Sentiment was released to a hearty beat of the expectation, adding to the earlier enthusiasm as all of US equities, bond yields and the US Dollar caught rallies.
Around the USD for next week, the big question is whether this one day of strength is enough to negate the bearish theme that’s built-in so far during Q4. At this stage there’s simply a dearth of evidence to suggest that this is the start of a fresh trend rather than a corrective move in the bearish scenario, but given the fact that bears were thwarted in the month of November combined with this morning’s data releases, it’s enough to put the US Dollar in a neutral spot for next week’s technical forecast. However, there are spots of attraction on each side of the Greenback, with pairs such as GBP/USD or USD/CAD as more attractive for themes of USD-weakness while pairs such as EUR/USD or USD/CHF are set up more attractively for a deeper run of USD-strength. Those will be looked at below.
Technical Forecast for the US Dollar: Neutral
US Dollar Daily Price Chart
EUR/USD Falls From Resistance – ECB on Deck
The ECB rate decision on Thursday is one of the major highlights of next week’s economic calendar, and that’s set to take place on Thursday which is the same day as UK General Elections. That should make for a tumultuous backdrop across the FX-space so positioning ahead of time appears key for working with themes around those events. In EUR/USD, the pair held resistance around the 1.1100 handle, even as the USD was falling through the floor in the early-portion of this week; and when USD-strength did return on Friday, sellers made a pronounced entry back into the scenario, pushing price action below the 1.1050 area, albeit temporarily. For next week, EUR/USD appears primed to continue the recent round of mean reversion, targeting a re-test of the 1.1000 area that’s already offered support on two separate occasions over the past few weeks.
Technical Forecast for EUR/USD: Bearish
EUR/USD Four-Hour Price Chart
GBP/USD: Bullish Breakout Continues to Run
The British Pound put in a blistering breakout this week on the back of Brexit optimism as UK General Elections are set for next Thursday. I’ve been bullish on the pair for some time now, going back to the month of August when a long-term trendline came back into play around the 1.2000 handle. But since then, a whole other theme has emerged as No-Deal Brexit doesn’t appear as likely and long-term short positions have been squeezed out of the scenario.
That breakout became problematic for trend traders this week when it moved into an overbought position. The Friday rally in USD helped to temper that trend, however, as looked at in the Friday article entitled, US Dollar After NFP: GBP/USD, USD/CAD Testing Key Chart Levels.
That support filled-in shortly after and buyers have come back in to push prices higher, thereby keeping the door open for bullish scenarios going into next week. This would likely remain as one of the more attractive short-USD candidates until something changes or shifts around the Brexit scenario.
Technical Forecast for GBP/USD: Bullish
GBP/USD Four-Hour Price Chart
USD/CAD Rockets-Higher After Canadian Jobs Disappoint
NFP wasn’t the only employment release scheduled for Friday morning as jobs data was also being released out of Canada. And diametrically opposed to the US release, Canadian jobs disappointed, bringing CAD weakness into the mix, and when meshed with the US Dollar, this amounted for a strong bullish bounce after the early-week sell-off.
At this stage, USD/CAD is testing a key area on the chart and this can keep the door open for short-side swing strategies into next week.
USD/CAD Technical Forecast: Bearish
USD/CAD Four-Hour Price Chart
USD/CHF Range Continues as Support Holds the Lows
A slightly different backdrop is showing around USD/CHF which has largely remained in a range through Q4 trade thus far. I had looked at this on Tuesday before support began to play-in and again on Thursday after it had started. The consistency of this range combined with the possible threat of SNB intervention should the Franc get too strong keeps the bullish side of this range as more attractive.
USD/CHF Technical Forecast: Bullish
USD/CHF Four-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.
— Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX