Bulls Return as Bears Bail; Setups on EUR/USD, USD/JPY, AUD/USD

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US DOLLAR OUTLOOK – EUR/USD, USD/JPY, AUD/USD

  • The U.S. dollar, as measures by the DXY index, rallies following strong U.S. labor market numbers
  • Solid job creation could delay the start of the Fed’s easing cycle and reduce the likelihood of deep rate cuts
  • This article examines the technical outlook for three major currency pairs: EUR/USD, USD/JPY and AUD/USD.

Most Read: US Dollar Forecast – Bulls Mount Comeback; Setups on EUR/USD, USD/JPY, GBP/USD

The US dollar, as measured by the DXY index, blasted higher on Friday after the U.S. jobs report revealed that U.S. employers added 353,000 workers in January, nearly double Wall Street consensus estimates. Average hourly earnings also surprised to the upside, with the year-over-year reading clocking in at 4.5% versus 4.1% expected – a sign that wages are reaccelerating (a possible headache for the FOMC).

US DOLLAR AND YIELDS PERFORMANCE

Source: TradingView

US LABOR MARKET DATA

Source: DailyFX Economic Calendar

Solid job creation, coupled with red-hot pay growth, indicates that the American economy is holding up remarkably well and may even have picked up momentum at the outset of the new year, a situation that could delay the start of the Fed’s easing cycle and limit the number of rate cuts once the process gets underway. The chart below shows FOMC interest rate probabilities following the latest NFP report.

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Source: CME Group

With the U.S. labor market still firing on all cylinders, policymakers will be reluctant to move off their restrictive stance anytime soon for fear that a premature rate cut could complicate their fight against inflation. Against this backdrop, we could see U.S. Treasury yields push higher in the coming days and weeks, creating a constructive environment for the U.S. dollar.

In the following section, we will set fundamentals aside and examine the technical outlook for three major U.S. dollar pairs: EUR/USD, USD/JPY and AUD/USD. In the analysis, we will dissect important price thresholds that could act as support or resistance, information that every forex trader should have on their radar for the upcoming trading sessions.

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EUR/USD TECHNICAL ANALYSIS

EUR/USD nearly broke the upper boundary of a falling wedge but reversed lower heading into the weekend following strong U.S. data, with prices tumbling towards cluster support at 1.0780. This area must hold at all costs; failure to do so could result in a drop towards 1.0730, followed by 1.0650.

In the event of a bullish turnaround from current levels, overhead resistance stretches from 1.0840 to 1.0860. Moving beyond this range, FX traders are likely to shift their attention towards the 50-day simple moving average at 1.0915 and 1.0950 thereafter.

EUR/USD TECHNICAL ANALYSIS CHART

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Change in Longs Shorts OI
Daily -24% 9% -1%
Weekly -15% -2% -5%

What does it mean for price action?

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USD/JPY TECHNICAL ANALYSIS

USD/JPY broke above key tech levels on Friday, but stopped short of clearing trendline resistance at 148.35. With the bulls back in control of the market, however, this ceiling could be breached any day now. When that happens, we could see a move towards 148.90 and 150.00 in case of further strength.

On the other hand, if sellers regain the upper hand and manage to spark a bearish reversal, traders should keep an eye on the 100-day simple moving average at 147.40. Below this area, the next support zone to watch appears at 146.00 ahead of 145.30, which corresponds to the 50-day simple moving average.

USD/JPY TECHNICAL CHART

USD/JPY Chart Created Using TradingView

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Change in Longs Shorts OI
Daily 7% -29% -4%
Weekly 5% -28% -5%

What does it mean for price action?

Get My Guide

AUD/USD TECHNICAL ANALYSIS

AUD/USD plummeted on Friday, piercing an important support region at 0.6525 and closing the week below it – a negative technical signal for the pair. If the downward momentum persists in the coming trading sessions, the next line of defense against a bearish attack emerges at 0.6460, followed by 0.6395.

Conversely, if market sentiment improves and the Australian dollar stages a turnaround, resistance looms at 0.6525, followed by 0.6575/0.6600. The bulls will have a hard time pushing prices above this barrier, but if they manage to do it successfully, we can’t rule out a revisit of the 0.6625 region.

AUD/USD TECHNICAL CHART

AUD/USD Chart Created Using TradingView



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