US Dollar Talking Points:

• It’s been a busy week for the US Dollar with yesterday’s FOMC rate decision being followed by rate meetings in Japan, the U.K., and Switzerland.
• The USD jumped up to a fresh 20-year-high after yesterday’s 75 bp hike from the Fed but has since pared that gain after a 50 bp hike from the Bank of England and a 75 bp hike from the Swiss National Bank. EUR/USD dynamics remain of high importance, and USD/JPY was hit after Japan intervened following a Bank of Japan rate decision last night. I looked into this matter yesterday, warning of potential change as Japan's inflation has pushed up to 31-year highs.

It’s been a very busy past 18 hours across markets and technically it’s not over yet. Sure, we may have already heard a chorus call of hawkishness from global central banks but at this point price action is still running on those themes and we don’t quite know what the net is going to look like.

To be sure, there was an injection of a considerable amount of new information and that’s already led to some key market moves. But, it’s the price action in the coming days that will denote which trends may have staying power and which were quick flashes in the pan. Perhaps most noticeably, the risk trade took a nasty turn yesterday just after the conclusion of the FOMC press conference. Stocks pushed to fresh two-month-lows overnight and are now trying to grasp support.

In the US Dollar, however, there was a very sharp breakout that showed even before yesterday’s FOMC announcement, with a continuation that ran through the Asian session and into the Euro open. That’s also around the time that the Ministry of Finance in Japan announced an intervention in USD/JPY, which stepped on the bullish USD trend and pushed a pullback, with support showing up around prior resistance.

US Dollar Four-Hour Chart

(Click on image to enlarge)

Chart prepared by James Stanley; USD, DXY on Tradingview
 

USD Support Potential

This week’s breakout in the USD has already cleared through a couple of key areas. There was a build of resistance around 110 which led to another test of resistance at 110.24 which started to give way ahead of the FOMC meeting.

Each of those spots of prior resistance becomes potential support, and there’s also a bullish trendline that was previously in use to help set up the ascending triangle that led into the 110.24 breakouts.

US Dollar Two-Hour Price Chart

(Click on image to enlarge)

Chart prepared by James Stanley; USD, DXY on Tradingview
 

EUR/USD

For the past couple of months, I’ve been talking about the EUR/USD parity scenario. The fundamental backdrop around Europe remains pretty negative, and the trend in EUR/USD is already well-built. And parity is a major psychological level that ideally should put up some fight before sellers are able to leave it behind. And I’ve pointed out more times than I can count that when EUR/USD was surging higher in 2002 as the single currency was gaining widespread and global acceptance, parity took about six months to finally leave behind.

Parity is somewhat of the ultimate psychological level and it started to come back into play in July. And through August and early September, it had bent but hadn’t quite broken, as prices were above parity just earlier this week.

But, there was also a building bearish narrative that started to make that support look vulnerable, and yesterday during FOMC it finally gave way.

Yesterday saw sellers take out support to set a fresh 19-year-low in the EUR/USD pair.

EUR/USD Four-Hour Chart

(Click on image to enlarge)

Chart prepared by James Stanley; EURUSD on Tradingview

Now that a support break is in on EUR/USD and the falling wedge formation looks invalidated – the big question is whether sellers will run. The door appears open for such, but first, there needs to be a show of lower-high resistance to keep the ball rolling on fresh lower lows and lower highs.

From the two-hour chart below, we can already see some seller defense of the .9900 handle, which is quite a bit of resistance showing in a prior spot of short-term support, taken from around .9862-.9876. If bulls can muster a deeper pullback, the .9950 area remains of interest as well for lower-high resistance themes.

EUR/USD Two-Hour Price Chart

(Click on image to enlarge)

Chart prepared by James Stanley; EURUSD on Tradingview
 

GBP/USD

The Bank of England just hiked rates by 50 basis points. GBP/USD has put in a bounce from fresh 37-year-lows but sellers have remained pretty active here, holding resistance at prior support, around the 1.1350 area.

GBP/USD Two-Hour Chart

(Click on image to enlarge)

Chart prepared by James Stanley; GBPUSD on Tradingview
 

USD/CHF

I don’t often touch on USD/CHF and there are a few reasons for that. But, of late, the currency has been on the move and this morning saw the Swiss National Bank put in a 75 bp hike, which has brought in some volatility that’s of interest to me.

That hike brought the dreaded ‘rate hike sell-off’ in the currency but this has pushed the price right up to a key zone of resistance, taken from around the .9800 handle up to around .9850. A hold here can keep the door open for reversal scenarios at some point, but if we do see clearance above the .9900 psychological level, the door quickly opens for a parity test there, as well.

USD/CHF Daily Price Chart

(Click on image to enlarge)

Chart prepared by James Stanley; USDCHF on Tradingview
 

USD/JPY

I’ve saved the big one for last…

I talked about this yesterday as the Bank of Japan rate decision after FOMC was seemingly ignored by much of the financial media. But, earlier in the week Japanese inflation spiked to a fresh 31-year high, and while at relatively subdued levels compared to the rest of the world, it’s a massive change for the nation of Japan. And there’s now a series of cautionary tales of the problems that can come about from central banks ignoring inflation.

Nonetheless, at last night’s BoJ meeting, Governor Kuroda said ‘you can expect that there will be no change to our forward guidance for about two to three years.’

This was widely read to mean that the BoJ wasn’t going to intervene – and USD/JPY responded by jumping up to another fresh 24-year-high, crossing the 145 psychological level.

That did not last for long, however, as a couple of hours later the Ministry of Finance announced that Japan would intervene by buying Yen and selling US Dollars for the first time since 1998. The Bank of Japan then executes the move, and this created a large pullback in JPY trends in the European session which is still getting priced in as of this writing.

USD/JPY Four-Hour Chart

(Click on image to enlarge)

Chart prepared by James Stanley; USDJPY on Tradingview
 

USD/JPY Moving Forward

Perhaps the most important part of this dynamic is that we now know where the Finance Ministry has tried to draw a line in the sand, and I’m looking at the 145 level as that price.

And the thing about interventions – they don’t always ‘work.’ It’s a dangerous spot for a central bank to be in, particularly when speculators know what they’re trying to protect. And, at this point, given the positive carry behind USD/JPY, Japan is almost trying to fight the tide of capital flows which rarely seems to work out well.

This helps to explain why we’ve already seen such a strong bounce in USD/JPY, even as the Japanese Government has started to take an approach to work against it.

USD/JPY 30-Minute Price Chart

(Click on image to enlarge)

Chart prepared by James Stanley; USDJPY on Tradingview
 

Yen-Strength

If we are seeing a legitimate reversal in Yen-trends, there may be greener pastures away from the US Dollar, such as EUR/JPY or GBP/JPY – focusing those Yen themes against currencies that aren’t backed by yields as high as the US Dollar and, in turn, looking to pick on the lower carry rates that may suppress Yen-weakness scenarios on continued bounces.

More By This Author: