FX levels to watch: EUR/USD, GBP/USD and USD/JPY

The dollar has come under increasing pressure as the week goes on, with the Fed’s rate rise overshadowed by a slower future rate pathway. Is this the beginning of a wider phase of dollar weakness or merely a fleeting shift?

EUR/USD showing signs of bullish recovery

EUR/USD has managed to rally into the $1.1475 swing high, following a decline which failed to break below the $1.1267 swing low.

This provides a bullish signal to show a potential wider bullish phase coming into play after a period of consolidation taking place throughout the past two months. For the near term, watch out for the continued creation of higher lows as a signal of further upside, where a break out of that pattern points towards a retracement of the rally from the $1.127 low.

EUR/USD chart

EUR/USD chart

GBP/USD runs into notable trendline resistance

GBP/USD has been on the rise, with the pair reaching trendline resistance that has dated back to late November. The ability to break through this trendline could provide greater clues as to whether we will continue to trend higher or not.

The trend has been certainly negative over the past two months and, with a bearish rising wedge pattern coming into play, it looks likely we will start to weaken from the confluence of this descending trendline and rising wedge. As such, watch out for a potential bearish shift, with a break below $1.2608 providing confirmation of such an impending breakdown.

GBP/USD chart

GBP/USD chart

USD/JPY declines take us into daily confluence

USD/JPY has been declining sharply over the course of the week, with the breakdown falling pat the ¥112.20 zone to set a three-month low. The daily chart below highlights the importance of the low produced yesterday, with the price bottoming out at the point where the 200-day simple moving average (SMA) meets the 76.4% Fibonacci retracement.

Given the wider trend of higher highs and higher lows, there is a strong chance that we are currently seeing a retracement of the rally from ¥109.77 to ¥114.55. As such, watch for a potential break through the most recent intraday swing high (currently ¥111.46) as a signal that the pair is starting to turn back around. Conversely, a break below that ¥110.90 level could signal a wider bearish move in play.

USD/JPY chart

USD/JPY chart

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