US Dollar Reversal Continues: EUR/USD, GBP/USD, USD/CAD

US Dollar Price Outlook:

• Its been a reversal type of week for the US Dollar as the Friday-Monday breakout has now been fully erased. The stage is set with the NFP report, along with Canadian employment numbers on the economic calendar for tomorrow morning at 8:30 AM ET.

• The move of USD-weakness has had varying impacts against other currencies, with the move in the EUR/USD a bit more subdued than that showing in GBP/USD. USD/CAD, on the other hand, has continued to work through its own reversal after testing a big zone of resistance earlier this week.

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US Dollar Reversal Continues

The US Dollar reversal has continued through another day and the entirety of the Labor Day breakout has been entirely erased. The USD caught a significant bid to close out last week amidst a low-liquidity backdrop ahead of the long weekend in the US. That theme of strength continued through the Sunday open, even showing a small gap in DXY; and buyers continued to push through the Monday holiday. But since US traders have returned to their desks, a bit of reckoning has taken place as the entirety of that Friday-Monday ramp has been erased. Yesterday saw the Greenbacks descent pause in a zone of prior resistance; but that could merely slow down the move as sellers went back on the attack earlier this morning to push down to another fresh low.

Tomorrow brings Non-Farm Payrolls out of the US and this theme will be on center-stage; and this is in front of a rather important economic calendar for the next two weeks as next week‘s ECB leads into the following week’s FOMC rate decision. Both banks are expected to loosen policy: The bigger question is by how much, and what else they might have in store for later in the year.

On the US Dollar – the next notable area of support runs from 97.86-97.94, followed by the prior yearly high at 97.70.

US Dollar Two-Hour Price Chart

Chart prepared by James Stanley; US Dollar on Tradingview

EUR/USD Morning Star Continues

On a similar note, the EUR/USD put in a vicious move ahead of the long weekend, finally dropping below the 1.1000 handle after posturing around 1.1100 for the better part of the past six months. Sellers retained control through this weeks open but, similar to the above in USD, the Tuesday pivot turned into Wednesday drive, and the pair built in a morning star formation that has, thus far, continued-higher.

While the ECB is expected to nudge rates lower next week, the bigger question is whether QE may be around-the-corner or, perhaps even deeper rate cuts. There‘s been a lot of innuendo floating around this theme of recent and the most updated comments from ECB members appear to be leaning away from QE, at least for now. That could entail further EURUSD gains as a 10 basis point rate cut ahead of the FOMC’s 25 basis point rate cut the week after may not be enough to move the needle much.

EUR/USD Four-Hour Price Chart

Chart prepared by James Stanley; EURUSD on Tradingview

GBP/USD Rallies to Fresh Monthly High

GBP/USD has put in a stern rally so far this week, gaining almost 400 pips from the earlier-week low. While there are a number of fundamental justifications being discussed behind this premise, with a portion of that strength being owed to USD weakness, technical traders would likely point to the longer-term setup as a reason for such a dramatic shift in price action.

GBP/USD rode an aggressive downtrend into the month of August, eventually intersecting with a long-term trend-line. That helped August price action close as a doji, and sellers took a swing after the September open but were soon thwarted as the US Dollar began to reverse.

GBP/USD Monthly Price Chart

Chart prepared by James Stanley; GBPUSD on Tradingview

USD/CAD Reversal Continues to Show

It‘s been a big week for CAD-strength, aided by yesterday’s BoC rate decision. The pair tested a big area of resistance earlier this week that runs from 1.3361-1.3385, and as USD-weakness came into play, price action began to turn. That turn hastened through yesterdays Central Bank meeting, and USD/CAD is now testing the 1.3200 level as near-term support.

This can open the door for resistance plays around the prior support level of 1.3250, with targets directed towards deeper supports around 1.3132 and 1.3065. If both of those can get taken-out anytime soon, then a 1.3000 revisit may finally be in the cards.

USD/CAD Four-Hour Price Chart

Chart prepared by James Stanley; USDCAD on Tradingview