US Dollar Head and Shoulders Pattern, Focus on USD / CAD, NZD / USD

US dollar, USD / CAD, NZD / USD Talking points:

  • It’s been a big week with some high-impact releases and countless earnings reports from US companies.
  • The US dollar has both a short-term head-and-shoulders pattern and a longer-term reversed head and shoulders pattern: will bulls or bears win the tug of war?
  • The analysis in article is based on price promotion and chart formations. For more information on price action or chart patterns, check out our Finance Prop Education section.

It’s a huge week for the headlines as a number of earnings reports and US data releases will boost price action this week. And after last week’s massive defeat by Netflix, hopes are high in the tech industry for a similar outing, with the likes of Microsoft, Tesla and Apple all reporting this week. Beyond that, every day from Tuesday through Friday brings in a high impact American item the economic calendar, culminating in the FOMC tariff decision on Wednesday and the press conference.

Finance Prop Economic Calendar: High impact items for the week of January 25, 2021

Finance Prop economic calendar

Taken from the Finance Prop economic calendar

US dollar price action is built into the head and shoulders pattern

At this stage, the US dollar is holding on to 2021 gains after the currency started the year in an oversold state. It was also remarkable a falling wedge pattern that had formed, and these formations will often be approached for the purpose of bullish reversals. And while we’ve seen a little bit of that reversal theme, buyers haven’t really been able to keep control of the matter when the USD turned from a failed test at the 91.00 handle last week.

At this stage, there are formations on either side of the Greenback that can be used for the next week. In the short term, there is a head and shoulders pattern with a neckline around the psychological level of 90.00 on DXY.

To find out more about the head and shoulders pattern, checking out Finance Prop Education

US dollar four-hour price chart

US dollar four hour price chart

Chart prepared by James Stanley; USD, DXY on Tradingview

Stepping back and, as noted earlier, there is a pretty clear example of the mirror image of the above formation. The reverse pattern of head and shoulders is often approached with the aim of bullish breakouts, looking for buyers willing to push the bid beyond the previously established neckline, which is shown in maroon in the chart below.

Adding to the plot is another formation that was built into the 2020 close, and that’s a falling wedge formation that will often be approached for bullish reversals. The falling wedge and reverse head and shoulders pattern both point to the possibility of higher prices; and the argument can be made that the falling wedge has been filled so far as buyers have continued to support the greenback since the currency began to venture above that formation.

The big question is whether USD bulls will get that motivation to break out to a new high, but this would put the focus on the area around the 91.00 handle on DXY.

US dollar eight hour price chart

US dollar eight hour price chart

Chart prepared by James Stanley; USD, DXY on Tradingview

USD / CAD remains interesting for themes with a strong USD

For those looking for USD strength, there may be some suitable items to work with in USD / CAD.

USD / CAD tested a significant long-term level at 1.2622 last week as this is the 50% mark of the significant long-term move 2002-2007 in the pair. This level was viewed during the webinar on Tuesday of last week, and it quickly came into play a few days later. But – perhaps more intriguing than that, when that support test finally got into the equation, the pair put in a morning star pattern as Thursday’s support test led to a really strong day on Friday. Morning star patterns are often tracked for a bullish reversal, and given the pair’s proximity to the current resistance, this should open the door to bullish breakout potential.

To find out more about morning star patterns, join Finance Prop Education

On the USD / CAD Daily chart below, that morning star formation is outlined in green; and also important is possible falling wedge that’s also brewing, which again points to the potential for themes at the top in the pair.

To find out more about falling wedge patterns, join Finance Prop Education

USD / CAD daily price chart

USDCAD Daily Price Chart

Chart prepared by James Stanley; USDCAD on Tradingview

For USD Weakness themes, NZD / USD remains interesting

On the short side of the US dollar, NZD / USD can be interesting. The pair revived last week on the back of stronger-than-expected inflation data from New Zealand. This helped the pair recover from a previous sell-off, while regaining support from an area of ​​past trendline resistance.

This has built into a really interesting formation known as a cup and handle formation, which will often be approached with the aim of bullish continuation.

For more information about the cup and handle formation, join Finance Prop Education

NZD / USD four hour price chart

NZDUSD four-hour price chart

Chart prepared by James Stanley; NZDUSD on Tradingview

— Written by James Stanley, Strategist for Finance

Get in touch and follow James on Twitter: @Jndkgrf

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Categorized as Forex

By Jonathan Prop

Jonathan Prop is an independent financial advisor. He has been working in finance for the last 20 years. After retiring early in his 40s, Jonathan decided to help others get to grip with financial markets, particularly his area of expertise - forex!

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