US Dollar Price Action Into 2021: EUR/USD, GBP/USD, USD/JPY

With the end-of-year lurking traders should be cautious of short-squeeze scenarios in the USD, as the currency has been exhibiting signs of support over the past week as sellers may rightfully be exhausted. The 90.00 psychological level in DXY could be especially stubborn at this late stage of the game, and the pair may need a bit of rip to clear out some stops before sellers might be able to drive down towards that 88.26 spot on the chart.


US Dollar Four Hour Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview


It was a surprisingly strong year for the Euro, even with the ECB continuing to increase stimulus amidst an ongoing pandemic. In EUR/USD, that Euro strength meshed with a really weak US Dollar, and, at this point, the currency pair remains perched very near fresh two-year-highs that were set just last week.

At this point, the pair appears to be trying to hold higher-low support at an area of prior resistance: And this is the same resistance zone that marked the neckline of an inverse head and shoulders pattern before last week’s FOMC-fueled breakout.

This zone already caught a support inflection earlier this week. This support zone spans from 1.2134 up to 1.2167, each of which derive from longer-term Fibonacci studies. A hold of support in this zone keeps the door open for topside strategies, but with the caveat of comfort around USD given the scenario looked at above (and which we’ll discuss further a little below).


EURUSD Four Hour Price Chart

Chart prepared by James StanleyEUR/USD on Tradingview

Given the potential for a short-squeeze in the US Dollar going into year-end, and there could be some similar possibility of a trap setting up on the long side of EUR/USD.

While the current support zone has some longer-term connotations and did an impressive job of helping to set resistance (and the neckline of that inverse head and shoulders pattern); we never saw EUR/USD test the 1.2000 psychological level for support after the December 1st breakout. This level gave a strong dose of resistance in early-September; and given that we’ve already seen some support show in the current zone, the door could be open to a deeper bearish run in the pair with eyes towards that 1.2000 spot for subordinated support.

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