**U.S. Dollar Attempts a Recovery Following Recent Selling Pressure: In-depth Analysis of EUR/USD, GBP/USD, USD/CAD, and USD/JPY**
*Original article by Vladimir Zernov, FX Empire. This is a rewritten and expanded version for educational purposes.*
The U.S. dollar, after experiencing a notable decline at the start of the trading week, is showing signs of a rebound amid shifting sentiment in global markets. Traders appear to be re-evaluating the fundamental drivers of recent currency moves, especially as interest rate expectations from the Federal Reserve remain at the forefront of investor sentiment.
In this analysis, we delve into the performance and outlook for four major currency pairs involving the U.S. dollar: EUR/USD, GBP/USD, USD/CAD, and USD/JPY.
### U.S. Dollar Attempting to Rebound
– On Monday, the U.S. Dollar Index registered notable losses as investors responded to dovish cues from data and commentary related to the U.S. economy and future Federal Reserve policy.
– Tuesday morning opened with stronger demand for the greenback, reflecting fresh optimism around a stabilization in Treasury yields and continued apprehension regarding economic growth in other regions, particularly Europe and China.
– The 10-year U.S. Treasury yield ticked back above 4.3%, slightly relieving pressure on the dollar, which tends to track movements in yields closely.
Markets continue to closely monitor remarks from Federal Reserve officials, U.S. economic indicators, and global risk sentiment. As expectations toward rate cuts in late 2024 remain fluid, the dollar’s direction will likely hinge on further clarity from upcoming macroeconomic data and official commentary.
### EUR/USD: Brief Retreat After Strong Start to the Week
– The EUR/USD pair pulled back slightly in early Tuesday trading, having surged higher on Monday, driven by broad U.S. dollar weakness and stronger-than-expected Eurozone data.
– Eurozone services PMI readings provided a short-lived lift to the common currency, suggesting that the service side of the European economy remains resilient, even as the manufacturing sector continues to struggle.
– However, broader monetary policy divergence continues to weigh on EUR prospects:
– The European Central Bank (ECB) remains on track toward initiating a rate cut cycle as early as June.
– In contrast, the Federal Reserve maintains a more cautious tone toward easing policy, citing ongoing inflation concerns and the need for more data before deciding on rate adjustments.
**Support and Resistance Levels:**
– Immediate resistance for EUR/USD appears near 1.0800, a psychological barrier and technical level where prior rallies have faltered.
– Initial support is located near the 50-day moving average at 1.0720, with stronger support at the 1.0660 region.
**Key Factors Influencing EUR/USD:**
– Eurozone inflation and growth differential with the U.S.
– Diverging rate expectations: ECB dovishness vs. Fed caution
– Upcoming German industrial data and ECB speakers
If the euro holds above the 1.0700 level and sentiment remains risk-on, another attempt at breaking 1.0800 could materialize. However, any resurgence in Treasury yields or geopolitical tensions could favor the dollar and put pressure back on EUR/USD.
### GBP/USD: Sterling Faces Resistance After Rally
– The British pound rallied strongly at the beginning of the week, buoyed by improving risk appetite and expectations that the Bank of England (BoE) may delay rate cuts until later this year.
– However, early Tuesday saw GBP/USD traders take a more cautious approach, prompting modest profit-taking near key resistance levels.
**Fundamental Backdrop:**
– The BoE is expected to begin its own easing cycle later than both the ECB and the Fed, likely providing some relative support for the pound.
– Inflation in the UK remains somewhat elevated, especially in housing and services-related areas, which keeps the central bank on alert.
**Support and Resistance Levels:**
– Resistance is forming near the
Explore this further here: USD/JPY trading.