EUR/USD, USD/JPY, and AUD/USD Forecast: US Dollar Continues to Soften Ahead of Fed
(Adapted from the original article by Christopher Lewis on FXEmpire)
As global financial markets await the next Federal Reserve decision, the US dollar continues to retreat against its key counterparts. Currency pairs such as the EUR/USD, USD/JPY, and AUD/USD all display movements indicative of broader expectations relating to interest rate policies, inflation outlooks, and risk sentiment worldwide. This in-depth analysis reviews the current behavior of these major currency pairs and the underlying economic forces influencing their trajectories.
Overview of the Market Landscape
The US dollar’s recent decline can largely be attributed to:
– Rising speculation that the Federal Reserve may pause or reduce the pace of rate hikes
– Economic data pointing toward a potential slowdown in US inflation
– Improved sentiment around global growth conditions, contributing to increased appetite for risk assets
These dynamics have made major currencies like the euro and Australian dollar more attractive, while safe-haven flows appear to be waning. The Japanese yen, another traditionally secure asset, is also influenced by domestic policy and broader global yield movements.
EUR/USD: A Bullish Tone Strengthens as Dollar Retreats
The EUR/USD pair has demonstrated bullish resilience in recent sessions. Several contributing factors have driven the euro higher against the US dollar:
– A weakening dollar prompted by declining US Treasury yields
– Expectations that the European Central Bank (ECB) will continue to maintain tighter policy for longer than the Fed
– Market anticipation of the Fed approaching the end of its tightening cycle
Technically, the euro is testing important resistance levels as traders evaluate the balance between interest rate differentials and inflation outlooks.
Key Technical Observations:
– The pair is inching closer to the 1.09 zone, a significant resistance level that has served as a cap over the last several attempts
– Support is found around 1.0750, which has provided a solid base in recent weeks
– Momentum oscillators such as the Relative Strength Index (RSI) suggest ongoing potential for upside pressure unless major macroeconomic news reverses sentiment
Traders will likely be focused on the upcoming Federal Open Market Committee (FOMC) decision, along with key economic indicators such as US CPI and jobs data for signal clarity on future Fed moves.
USD/JPY: Yen Strengthens Despite Bank of Japan’s Dovish Posture
While the Bank of Japan (BoJ) maintains a relatively dovish monetary policy, USD/JPY has declined, driven more by dollar weakness than by yen strength alone. Investors are taking refuge in the yen amid falling US bond yields and expectations of policy moderation by the Fed.
Important Drivers of USD/JPY Price Action:
– US 10-year Treasury yields have dropped, reducing the appeal of the dollar relative to the yen
– Fading expectations surrounding further near-term Fed rate hikes
– Slightly better risk conditions globally, prompting rotation away from US-dollar denominated assets
Technically, the pair faces multiple decision points as it trades below recent highs.
Key Technical Levels:
– Resistance remains close to the 145 level, where sellers have previously stepped in
– Support is firming near the 141.50 – 142.00 area, with a break below potentially opening the door to 140.00
– Oscillators indicate a neutral to slightly bearish momentum setup, signaling a possibly protracted consolidation period
The yen could experience increased volatility if the BoJ surprises markets with commentary surrounding inflation or hints at eventual policy adjustment.
AUD/USD: Australian Dollar Gains Momentum as Risk Appetite Improves
The Australian dollar has emerged as one of the stronger performers against the US dollar amid softening American economic data and a global search for higher-yielding assets. The Reserve Bank of Australia (RBA) has paused rate hikes recently but retains a stance that leaves room for renewed tightening if inflation proves persistent.
Key Catalysts for AUD/USD Upside:
– General US dollar softness as
Explore this further here: USD/JPY trading.