US dollar forecast: Seeking breakouts on USD/JPY, USD/CAD. Feb 7th 2024

Without top-tier economic data scheduled, I suspect market conditions likely favour technical analysis over the foreseeable future whilst a pullback on USD plays out.

By :Matt Simpson, Market Analyst

US dollar index technical analysis (daily chart):

The US dollar index enjoyed its best 2-day rally between Friday and Monday thanks to the strong NFP figures and inflationary ISM services report. So it can be excused for being the weakest FX major on Tuesday, as it simply looks like a retracement against that two-day bullish move.

The small bearish inside day around the cycle high and subsequent gap lower today suggests the US dollar index wants to retrace further. But let us not lose sight of the fact that the US dollar index retains a bullish daily structure, and any pullback towards its 200-day EMA (103.50) is likely to be viewed favourably by bulls.

Even if it flirts with a break beneath the 200-day EMA, I suspect the elongated bullish engulfing candle is going to be tough to break beneath. So unless the Fed turn on their dovish mode, bears may look to enjoy a retracement lower for USD on the intraday timeframes until momentum reverts to the bullish daily trend.

Forex majors overview (daily chart):

We’re not in a phase where forex majors are dominated by the USD by equal degrees. And that is to be expected during a corrective phase which lacks a macro catalyst. And without top-tier data to drive the US dollar, FX major pairs are playing nicely with technical levels.

  • GBP/USD has rallied from its 200-day EMA after breaking down from its 1.26 – 1.28 range, and now flirting with a break of its old support level around 1.26.
  • USD/CHF printed a 1-day bearish reversal candle (shooting star) at its 100-day EMA after it failed to hold onto its breakout above the January high – perhaps there’s room for a deeper pullback
  • AUD/UD and NZD/NZD are trying to extend their gains for a second day with minimal effort. Yet NZD/USD is staling around 0.6100 and its 200-day EMA whilst AUD/USD is struggling to tap the 0.6650 level or 10-day EMA
  • A bearish engulfing day formed on USD/JPY, but already in Wednesday’s Asian session is lacks enthusiasm to drop materially lower
  • USD/CAD formed a tripled top on the daily chart around a 50% retracement level, but is trying to fund support around its 100 and 200-day EMAs
  • EUR/USD has heled above its December low, but given the magnitude of the drop to that key support level an eventual break beneath it is currently favoured

USD/JPY technical analysis (1-hour chart):

The bias for a move to 150 remains in place, although yesterday’s bearish engulfing candle warns of a pullback. The 1-hour chart shows that USD/JPY has found support above its weekly pivot point and at its 200-bar EMA. Given the two small bullish hammers and bullish engulfing candle, a sing low may have formed.

Bulls could seek dips within the last 3-hour range in anticipation of a break above 148, and potential move for 148.20 and 148.35.

Due to the potential for the US dollar to retrace further, another leg lower also remains a possibility. At which point, I would seek bullish setups if evidence of support appears around 147.20 or 146.60 – 146.80.

USD/CAD technical analysis (1-hour chart):

The BOC was the latest central bank to push back on cutting rates too soon, which helped the Canadian dollar catch a bid against the US dollar. As noted on the daily chart, a tripled top occurred at a 50% level, and previous analysis has also noted CAD’s tendency to react around 50% retracement levels. And that could come in handy now.

Prices are trying to hold above the 200-day EMA around a volume cluster, but if prices retrace further then bulls could seek to enter around 1.3450 / 50% retracement level for a swing trade long. And as I suspect then current move lower is corrective, perhaps it can also break above the triple top and its way to the original 1.36 target.

– Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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1 Like

What do the blue horizontal bar overlay on your graphs mean? Is that related to orders?

Volume profile - a histogram of volume at price levels. The blue show ‘regular trading hours’ during the cash market, the grey show ‘out of market’ hours.

Oh thanks! Can you tell the difference between buying and selling? Or do you even care?

The volume profile displayed is the total of buy and sell quotes combined. It can however be used to show delta (buy - sell) or a stacked profile of buys and sells. Volume profile is a simpler version of market profile, but both can be big subjects, so worth doing your own research on before implementing. However, in this case we’re simply looking for the high-volume nodes (peaks of the profile) to try and identify hidden areas of support or resistance within a certain time period.

Interesting post. USDJPY got a good run after your analysis, but seems to have settled in consolidation mode now (that the NY session has closed). I went long at 148.18 with a TP at 149.50. It made it all the way to 149.48! Still holding the position though. What are your thoughts for when the London session opens? No major economic news before that, will it pick up the momentum again you think?

London sessions are notorious for fickle price action at the open, so anything can happen. As for USD/JPY, the trend remains bullish, the BOJ remain dovish and the Fed are pushing back on rate cuts which is supporting the USD/JPY rally. The bias for a move to 150 remains in place unless momentum suggests otherwise.

I agree, the disparity between the two central banks indicates further gains. There is also a rising wedge forming, will also keep an eye on that, although it does not seem all that strong.

Nice one!

This is specific to just, right? Or can we make assumptions that this buying and selling activity is the same or close across other brokers? Or does that even matter?

FX pairs use ICE data - which last time I Checked was combined tick volume from ~30 FX brokers. Whilst tick volume is not ‘official’ volume per say, it is close enough to be useful

Oh that’s really good to know.