US Dollar Talking Points:
- The US Dollar is bouncing to start June trade, coming on the heels of a two-week pullback at the end of May.
- May price action produced the first bearish monthly bar of 2022 trade. But, support has already showed up at a key spot, with an assist from a Fibonacci retracement at 101.80. Are USD bulls knocking on the door with NFP on Friday and the FOMC in 2 weeks?
- The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
The US Dollar just completed its first bearish monthly bar of 2022 trade. The early-portion of the month saw bulls drive up to another fresh high, this time setting a fresh 19-year-high in the currency. But that strength dissipated in the second-half of the month as stocks started to show signs of pulling back.
The second-half of May saw the entirety of those early-month gains erased, with prices returning back to a key zone on the chart, plotted around some prior resistance that’s around the 61.8% Fibonacci retracement of the 2001-2008 major move.
US Dollar Monthly Price Chart
US Dollar Shorter-Term
On a shorter-term basis, support is playing-in from a prior spot of resistance. This plots around a trendline projection from a bullish channel that guided the currency for the better part of a year until the mid-April breakout. This support came into play on Monday and that led to a bounce yesterday which has so far continued through today.
We’re at near-term resistance right now, plotted at 102.35 which is taken from a prior swing-low. Shorter-term support potential remains at both 102.04 and 101.80.
US Dollar Daily Price Chart
Chart prepared by James Stanley; USD, DXY on Tradingview
Going along with that pullback in the US Dollar bullish trend was a similar pullback in the EUR/USD bearish move. Prices put in a very strong two-week outlay after coming just pips shy of setting a fresh 19-year low in the pair. That price is at 1.0340 and last month the low in EUR/USD printed just 8 pips away, highlighting an oversold situation from which sellers simply lost interest.
That led to a short-squeeze that continued to heat-up through the rest of the month, with May resistance finally printing around a prior spot of support, around the same 1.0765 level that was in-play as support in April.
At this point prices have already slid below a key level around 1.0695 but there’s a key spot of support that spans from 1.0593 up to 1.0638, and a hold of support here can keep the door open for bullish themes, especially considering the longer-term oversold backdrop that’s already contributed to the two-week bounce. But – if sellers are able to test through the 1.0593 Fibonacci level, the door opens for a test of the 1.0500 psychological level, and if sellers can test through that – the low is exposed.
EUR/USD Weekly Price Chart
While EUR/USD is hovering over that big spot of support, GBP/USD has already started to test its similarly-spotted zone. I’m tracking support in the pair from a Fibonacci level that’s confluent with the 61.8% marker of the 2020-2021 major move around 1.2500. I’m spanning that down to 1.2452, taken from a group of prior swings, and a hold here keeps the door open for bullish potential.
But, like EUR/USD above, the past two weeks of strength may have just been a pullback from deep oversold conditions and there’s still scope for bearish behavior. A breach of the 1.2380 spot of prior resistance will make the bearish theme look more attractive, and this opens the door for a re-test of the 1.2250 level, after which that swing low from 1.2153 comes into play.
GBP/USD Daily Price Chart
For those that are looking for a deeper pullback in the USD, AUD/USD may be getting more attractive again, particularly given price action from the first couple days of this week. While EUR/USD and GBP/USD already appear to be ensconced in reversal themes, AUD/USD is, at this point, still showing a blue weekly bar. The next major spot of resistance is around the .7250 psychological level, and support potential remains from around the .7000 big figure up to the .7053 Fibonacci level. There’s also a spot of short-term support potential plotted at a prior swing-high around .7113. For bulls looking at near-term continuation, a hold of support there would be key to keeping the door open for a .7250 re-test.
AUD/USD Daily Price Chart
USD/JPY looks to be lining up for themes of USD-strength, as well, with prices quickly pushing back-up to the 130.00 psychological level. There’s also an appearance of a cup forming for a possible cup-and-handle formation, which would keep the door open to short-term resistance off of 130.00 for the handle to build, with focus on support potential around prior resistance of 129.42. If that can’t hold, deeper support potential exists around 128.71 and a hold there could retain a bullish bias.
USD/JPY Four-Hour Price Chart
— Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX