US Dollar Drops To August Lows – Is The Bullish Trend Finished?

Talking Points

The US Dollar has fallen-below the bullish trend-line that has supported prices over the past two months, and we’re now seeing sellers test August lows in the currency around 94.50. The big driver here appears to be the recovery in EUR/USD, as the pair has now recovered the entirety of the prior August losses, and then some. The non-completed monthly bar in EUR/USD is now showing a hammer formation, and this can often be looked at for bullish reversals after seller capitulation after a fresh low.

While EUR/USD has had a very strong second-half of August, the same can’t quite be said for other major pairs, such as GBP/USD and AUD/USD, each of which retain some element of bearish quality on the charts. We look into each of these markets below in the effort of contrasting price action while showing where the big source of USD strength has been emanating from.

US DOLLAR DROPS THROUGH TREND-LINE SUPPORT

The US Dollar has continued its two week descent, and this comes just after the Greenback set a fresh yearly high in the middle of August. It’s been a quick retracement in USD and as we looked at yesterday, prices were previously sitting on a big support level around the 95.00 handle on DXY. This wasn’t the first time that support came into play, as we’d seen something similar show in early-August. But during that run, the Euro caught another wave of selling as fears around contagion from Turkey pushed the single currency lower, driving EUR/USD along with it. This is what helped DXY breakout to that fresh yearly high two weeks ago; and as EUR/USD has recovered, DXY has retraced.

But elsewhere, in pairs such as GBP/USD and AUD/USD, the question remains whether the bullish trend in the US Dollar is dead and gone or whether we’ve just pulled back and reloaded for another run of continuation. Below, we look through three major currency pairs to investigate this deviation and where traders may be best served looking for US Dollar weakness to show with a bit more prominence, or which markets may be best positioned for a return of US Dollar strength.