US DOLLAR VS EURO, BRITISH POUND, JAPANESE YEN, AUSTRALIAN DOLLAR – PRICE SETUPS:

• The US dollar’s rally is showing signs of fatigue.
• Markets expect the Fed to keep interest rates on hold at next week’s meeting.
• What’s next for EUR/USD, GBP/USD, AUD/USD, and USD/JPY?

The US dollar’s rally is showing signs of fatigue ahead of the Oct. 31-Nov.1 FOMC meeting. Markets are pricing in a 98% chance that the Fed will keep interest rates on hold after a number of Fed officials recently pointed out that the tightening in financial conditions as a result of the jump in yields has reduced the need for imminent tightening – a point echoed by Fed chair Powell last week. For more details, see “US Dollar Outlook After Powell: GBP/USD, AUD/USD, EUR/USD Price Action,” published October 20.

Meanwhile, technical charts suggest that the greenback could be in the process of setting a short-term peak – a risk highlighted earlier this month. See “US Dollar Showing Tentative Signs of Fatigue: EUR/USD, GBP/USD, USD/JPY,” published October 5.

DXY Index: Upward pressure could be easing a bit

Chart Created by Manish Jaradi Using TradingView

DXY Index: Interim peak in place?

Market diversity, as measured by fractal dimensions, appears to be low as the DXY Index hit a multi-month high earlier this month. Fractal dimensions measure the distribution of diversity. When the measure hits the lower bound, typically 1.25-1.30 depending on the market, it indicates extremely low diversity as market participants bet in the same direction, raising the odds of at least a pause or even a price reversal. For the DXY Index, recently the 65-day fractal dimension fell below the threshold of 1.25, flashing a red flag, pointing to a consolidation/minor retreat at the very least. For more discussion, see “Has the US Dollar Rally Hit Limits? DXY Index Fractals, Price Action,” published October 17.

EUR/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView

EUR/USD: Breaks above minor resistance

EUR/USD has broken above minor resistance at the October 11 high of 1.0635 suggesting that the immediate downward pressure has faded a bit. This follows a rebound from a strong cushion at the January low of 1.0480 - a break below would have posed a serious threat to the medium-term uptrend that started late last year. EUR/USD’s rebound could extend a bit further toward the 200-day moving average (now at about 1.0825), roughly coinciding with the 89-day moving average (now at about 1.0725).

GBP/USD Weekly Chart

Chart Created by Manish Jaradi Using TradingView

GBPUSD: Slide pauses

GBP/USD’s slide has paused as it approaches significant support at the March low of 1.1800. Given oversold conditions, and light positioning, a minor rebound wouldn’t be surprising. Any break above the initial resistance at the October 11 high of 1.2350 could open the way toward the 200-day moving average (now at about 1.2450). Zooming out, the retreat in July from the 200-week moving average and the subsequent sharp decline raises the odds that the retracement is the correction of the rally that started a year ago. For more discussion, see “Pound’s Resilience Masks Broader Fatigue: GBP/USD, EUR/GBP, GBP/JPY Setups,” published August 23.

USD/JPY Daily Chart

Chart Created by Manish Jaradi Using TradingView

USD/JPY: Holds below the psychological 150 mark

USD/JPY’s rally is showing signs of fatigue as it tests the psychological barrier at 150, not too far from the 2022 high of 152.00. There is a chance of a minor retreat, initially toward the Oct. 10 low of 148.25. Beyond that, a crack under the early-October low of 147.25 would be required to confirm that the multi-week upward pressure had faded. For more discussion, see “Japanese Yen After BOJ: What Has Changed in USD/JPY, EUR/JPY, AUD/JPY?” published September 25.

AUD/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView

AUD/USD: Attempting to set a low

AUD/USD is attempting to form a low but lacks the required upward momentum yet. The pair has been holding above support on the lower edge of a declining channel since August, around minor support at the early-October low of 0.6285. AUD/USD would need to break above resistance at the end-August high of 0.6525 for the immediate downward pressure to dissipate. For more discussion, including fundamentals, see “Australian Dollar Jumps After China GDP Beat; What’s Next for AUD/USD?” published October 18.

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