FX levels to watch – EUR/USD, GBP/USD, USD/JPY

The dollar is back with a bang, following a hawkish Fed dot plot. With EUR/USD at a new 14-year low, could we see the dollar really take off?

Euro and dollar notes
Source: Bloomberg

EUR/USD returns to crucial support level

EUR/USD has sold-off sharply following a hawkish Federal Reserve dot plot yesterday. This has brought the pair back down towards the $1.0462 support level. That represents the March 2015 low, which if broken would set a new 14-year low for the pair.

Given the wider perspective, the breakout from this two-year range is expected to occur to the downside. However, until we break below $1.0462, there is always the potential for a bounce.

As such, the ability or inability to break and hold below $1.0462 will be the driver of price action today. A strong break lower could set us up for a sell-off lasting weeks or even months. 

GBP/USD back down to support confluence

GBP/USD has similarly suffered at the hands of the resurgent dollar, with the pair falling back to trendline support. With price marginally below that, it has stalled around the $1.2513 level. That is the lower level of the $1.2513-$1.2532 zone which acted as resistance throughout late November.

Given the confluence of both horizontal and trendline support, coupled with price breaking temporarily outside the Bollinger band, there is a chance we could see the pair start to turn higher in a short-term recovery move. On the flipside, an hourly close below $1.2513 would negate the trendline support and point towards a possible reversal of the strength we have seen in recent months. 

USD/CAD bounce points to further gains

USD/CAD has bounced from a seven-month trendline support, in a move which points towards a reversal of recent losses for the pair. With price forming a very shallow pullback (<23.6%), a closed hourly candle above C$1.3323 would provide a buy signal, with stops placed below the C$1.3274 overnight swing low.

This is based on a continuation of this recent strength and necessitates a break to a new high. Should that not occur, watch out for an hourly close below C$1.3274 as a signal of possible near term weakness.

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