Title: US Dollar Forecast: Key Price Action Setups in EUR/USD, USD/JPY, USD/CAD, and Gold
Author Credit: Adapted from an article by James Stanley, FOREX.com
The US Dollar continues to shape major trends in the global forex markets in early 2024, following recent momentum driven by a combination of economic data, hawkish Federal Reserve policy expectations, and overall risk sentiment. Traders are watching key setups in major currency pairs such as EUR/USD, USD/JPY, and USD/CAD, along with the impact on commodities, notably gold (XAU/USD), which has seen a breakout despite USD strength.
This article will explore the current dynamics driving USD movements, key technical setups in major pairs, and what traders should anticipate in the coming weeks.
U.S. Dollar: Resilient Following Data and Fed Rhetoric
The U.S. Dollar Index (DXY) has shown strength after initially pulling back during the first quarter of 2024. The index, which measures the dollar against a basket of major currencies, benefited from:
– Strong U.S. labor market data, including better-than-expected nonfarm payrolls
– Persistent inflationary pressures reflected in CPI and PPI
– Hawkish signals from multiple Federal Reserve officials, suggesting fewer rate cuts than the market initially priced in
– Rising U.S. Treasury yields reinforcing demand for the Dollar
Last week, DXY retraced back to the support zone near 104.50 before bouncing. The rebound has now pushed the index back toward the 105.80–106.00 resistance region, a critical technical juncture that could determine near-term directional bias.
Key Observations:
– The 105.88 level marks a swing high from March 2023, which acted as resistance in October and November 2023
– A breakout above 106 could open the door toward the 107.34 level, last seen in late 2023
– Momentum oscillators like the Relative Strength Index (RSI) on daily charts show room for upside without immediate overbought concerns
EUR/USD: Downtrend Reasserts as Dollar Recovers
EUR/USD, the most heavily traded currency pair in the world, has dropped from its April highs as the U.S. Dollar regained traction. The euro has faced pressure due to:
– Softening Eurozone inflation, with March data showing a decline in both headline and core metrics
– Increased likelihood of an ECB rate cut by June, with market pricing reflecting dovish bets
– Diverging economic trajectories of the U.S. and EU, with stronger U.S. growth data supporting the Dollar
Technical Outlook:
– EUR/USD broke below trendline support from October 2023 lows, signaling bearish breakdown
– The pair failed to hold above the psychological 1.0800 mark, turning this into resistance
– Immediate support is seen near 1.0700, followed by 1.0635, which was a key swing low in early 2024
– A move below 1.0600 could accelerate downside momentum, possibly targeting 1.0500
Traders will closely watch upcoming Eurozone economic indicators, including PMI and inflation prints, for confirmation of ECB’s next steps.
USD/JPY: Higher Highs as BoJ’s Policy Keeps Yen Under Pressure
USD/JPY continues to climb as the fundamental divergence between the U.S. Federal Reserve and Bank of Japan remains stark.
Despite a historic policy shift by the Bank of Japan in early 2024 — raising rates for the first time in 17 years — the move was largely symbolic. The BoJ continues to maintain an accommodative stance while inflation softens in Japan, reducing the urgency for further tightening.
Key Drivers for USD/JPY:
– Rising U.S. yields favor dollar demand
– The BoJ’s slow approach to normalization undermines the yen’s appeal
– Carry trading dynamics return as investors borrow in low-yielding
Read more on USD/CAD trading.