US Dollar Price Action Setups: EUR/USD, GBP/USD, EUR/JPY
By James Stanley
Adapted and expanded version from the original article on Forex.com
The US Dollar has been navigating a critical phase of price action as traders prepare for significant developments in monetary policy. The latest Federal Reserve meeting has played a key role in setting the tone, and what followed was a firm retracement of the USD rally. This article offers a detailed analysis of notable USD forex pairs—EUR/USD, GBP/USD, and EUR/JPY—and evaluates potential setups that could materialize depending on future developments in economic data and central bank policy decisions.
Overview of the Current US Dollar Environment
The US Dollar surge throughout much of 2024 has been largely driven by a resilient US economy and persistent inflation pressures, keeping the Federal Reserve’s hawkish sentiment in play. However, as economic data begins to soften and the Fed signals potential easing in the future, traders are reevaluating bullish expectations for the currency.
Catalysts of Dollar Movement:
– The Federal Reserve rate decision and Chair Jerome Powell’s tone in the post-meeting press conference.
– US jobs report and wage growth data showing signs of softening labor market conditions.
– Inflation data such as CPI and PCE core inflation remaining above targets but easing gradually.
– Interest rate differentials narrowing as other central banks begin to adopt more hawkish postures.
As markets reassess pricing around rate cuts, likely to occur later in 2024 or early 2025, the US Dollar could experience short-term corrections amid longer-term bullish trends. Technical setups on the charts of EUR/USD, GBP/USD, and EUR/JPY reflect this volatility.
EUR/USD: Bullish Breakout and Resistance Test
The Euro gained substantial ground against the US Dollar following the Fed rate decision. EUR/USD broke above a key resistance zone that had held firm since early 2024. The move came on the back of USD weakness, aided by more neutral commentary from Fed Chair Powell.
Technical Highlights:
– The 1.0700 level had been recent resistance, aligned with a prior support zone from February through April.
– After the Fed decision, the pair broke above this pivot and quickly tested the psychological 1.0800 level.
– A descending trendline connecting highs from December and March intersected near 1.0815, creating substantial resistance.
– The breakout above 1.0700 hints at a short-term bullish trend reversal.
Current Outlook:
While a higher high has been printed, bulls now face a significant hurdle at the descending trendline resistance and the swing high of 1.0815. If price can hold above 1.0750 on a pullback, the bullish case strengthens for a test of the next major resistance zone between 1.0880 and 1.0920.
Key Support and Resistance Levels for EUR/USD:
– Support: 1.0700, 1.0650, 1.0585
– Resistance: 1.0815, 1.0880, 1.0920
Strategy Considerations:
– Short-term traders may view the breakout above 1.0700 as a trigger for continuation plays.
– Bulls will likely wait for confirmation of support above that zone before entering new positions.
– Any rejection at 1.0815 could form a lower high, putting the spotlight back on 1.0700 as critical support.
GBP/USD: Sterling Rebounds Off a Key Pivot
The British Pound has shown impressive resilience, especially after the Fed meeting and softer US data. GBP/USD rebounded strongly after testing key support near the 1.2500 area, breaking above trendline resistance and approaching a new swing high post-Fed.
Technical Highlights:
– Price respected the 1.2500 level on recent pullbacks, bouncing strongly each time.
– A descending trendline from late April had offered resistance near 1.2600, which has now been breached.
Read more on EUR/USD trading.