US Dollar Price Action Setups for Q4: EUR/USD, USD/CAD, USD/JPY

US Dollar, EUR/USD, USD/CAD, USD/JPY Talking Points:

• Last week I looked at an ascending triangle in the US Dollar. That formation has since led to a bullish breakout with the Greenback pushing up to fresh yearly highs.
• Today marks the start of Q4, and with the Fed recently warning of rate hikes as early as next year, this can keep support behind the bid in the USD.
• Next week’s NFP report is key as this is the only NFP report that the Fed will see between September and November rate decisions. Will the data be strong enough to allow for the Fed to make a taper announcement next month?

With today marking the beginning of Q4, I wanted to take a step back to look at some longer-term charts around the US Dollar.

While the Greenback spent the back nine months of last year selling off, the first nine months of this year were marked by mean reversion as price action retraced about 38.2% of that prior sell-off. That 38.2% Fibonacci retracement came into play yesterday, on the final day of Q3, and has thus far held the high in DXY.

To learn more about Fibonacci, check out DailyFX Education

US Dollar Weekly Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

But perhaps more pressing than the resistance that’s already come into play is what the USD may have in store for this quarter.

It appears as though the door is open for the USD to break out of its pattern of mean reversion shown in the first nine months of 2021 trade. The currency has spent the past five months building in an ascending triangle formation – which is often approached with the aim of bullish breakouts. And before Q4 even started, that breakout started to take hold, with prices jumping beyond this resistance to a fresh 2021 high, eventually finding sellers at the Fibonacci level looked at above.

This, plus the Fed’s stance of moving away from the uber-loose policies that have punctuated the backdrop since the coronavirus came into the equation can keep bulls on the bid as we kick off the final quarter of the year.

If you want the full forecast, John Kicklighter took care of the fundamentals as I looked at the techs in the US Dollar for the Q4 forecast from DailyFX.

US Dollar Daily Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

EUR/USD With Deeper Bearish Potential

For bullish USD strategies, the short side of EUR/USD can remain an attractive theme. The ECB is in a tough spot with both weak growth and high inflation, and with the Fed taking on a tone towards ‘less loose’ monetary policy, this can expose the pair to further losses.

The problem, at least near-term, is just how quickly the move has built-in over the past month. After topping out around 1.1900 in early September sellers have already pushed price to a fresh yearly low, taking out the 1.1600 level along the way.

Underneath price action is a key zone running from a Fibonacci level at 1.1448 up to the psychological level of 1.1500. The August swing-low, taken from around 1.1665, can be re-purposed as resistance potential, and that can be spanned up to the 1.1709 Fibonacci level to create a ‘zone.’

EUR/USD Daily Price Chart

Chart prepared by James Stanley; EURUSD on Tradingview

USD/CAD: Somethings Going to Give

USD/CAD has been a fairly clean pair to work with USD themes so far this year. In the first five months, even as USD was basing support and running higher on recovery hopes, USD/CAD continued to sell-off.

The Bank of Canada beat the Fed to the punch regarding policy lift-off, and the BoC started talking about slowing bond purchases in April and this gave the Canadian Dollar another shot-in-the-arm, with USD/CAD continuing to sink until finally bottoming out just 2 pips above the 1.2000 psychological level.

That led to short-term reversal themes in Q3 that saw the pair start to claw back prior losses. But, for the past month and change, direction has been lacking: The pair has built into a symmetrical triangle with both lower-highs and higher-lows. This formation is often indicative of digestion, ahead of a potentially large move.

As far as biases are concerned: There is long-term support helping to cauterize the lows in that formation, and that spans between two Fibonacci levels of note, at 1.2622 and 1.2635. This same zone was support in early-2021 before becoming resistance in April and then July. It’s accented in green on the below chart.

To learn more about working with symmetrical triangles, check out DailyFX Education

USD/CAD Weekly Price Chart

Chart prepared by James Stanley; USDCAD on Tradingview

USD/JPY Tests Big Resistance to Start Q4

Given the dynamics in rates, it could be a big quarter for the Yen and in-turn, USD/JPY. This theme was on full display in Q1 and the Fed didn’t even mention higher rates, this was simply the market trying to get in front of what it thought would inevitably happen. And while the timing was early, the call does not appear to be wrong as the Fed has started to lay the groundwork for what so many were looking for earlier this year.

This can keep the topside of USD/JPY as interesting, but there’s just one problem: A massive zone of resistance that’s so far held the highs in 2019, 2020 and so far in 2021. This zone runs between a long-term Fibonacci level at 111.61 and the psychological level at 112.50. If bulls can break through this zone, there could be some significant room to run on the upside.

But, likely, for this to happen, we’ll need to see rates continue to run-higher in the US which also means we’ll likely need to see some strong data early in Q4 to support the theme.

USD/JPY Weekly Price Chart

Chart prepared by James Stanley; USDJPY on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX