Original article by James Stanley, published on Forex Factory.
Weekly Forex Forecast Overview (DXY, EUR/USD, GBP/USD, USD/JPY)
The Forex markets have continued to show volatility amid shifting central bank policy expectations, diverging economic signals, and geopolitical tensions. Traders closely watched key economic data last week, especially from the United States, where employment figures delivered a mixed message regarding the strength of the labor market. Heading into the new week, the technical structure across major currency pairs such as the U.S. Dollar Index (DXY), EUR/USD, GBP/USD, and USD/JPY suggests potential for notable moves.
Dollar Index (DXY) Outlook
The U.S. Dollar Index rallied strongly last Friday after the release of a blowout Non-Farm Payrolls (NFP) report. The unexpected strength in job additions brought doubts over the Federal Reserve’s ability to cut interest rates soon, thereby reinforcing USD strength.
Key Developments:
– NFP: The U.S. added 272,000 jobs in May, far exceeding the consensus estimate of around 180,000.
– Wage growth also surprised to the upside, with average hourly earnings rising 0.4 percent on a monthly basis.
Technicals:
– DXY surged higher, pushing above the key psychological level of 105 and testing resistance around 105.50.
– The index broke above the bearish channel that had contained price action for much of the end of May and early June.
– The move creates potential for a deeper bullish continuation in the short term.
Resistance:
– 105.52 (swing high from early May)
– 106.00 (round number resistance and March swing high)
Support:
– 104.50 (former resistance turned support)
– 104.00 (channel support and prior swing low)
Outlook:
– If DXY maintains its hold above the 105 threshold, bulls may look to target 106.
– A pullback toward 104.50 could also provide a support-based bullish continuation setup if macro dynamics remain USD-positive.
EUR/USD Analysis
The euro weakened considerably last week, pressured by strength in the U.S. Dollar and dovish signals from the European Central Bank (ECB). The ECB cut interest rates by 25 basis points during its June meeting, marking the start of their easing cycle, even though inflation data remains elevated.
Key Developments:
– ECB Rate Decision: ECB delivered a 25 bps rate cut but signaled caution about further easing due to inflation risks.
– Economic data from the eurozone remains mixed, with weak manufacturing PMIs but relatively stable services activity.
Technicals:
– EUR/USD dropped sharply after testing the 1.0900 level early in the week, with an accelerated sell-off following the ECB and NFP data.
– The pair fell below support at 1.0800 and now trades closer to 1.0750.
Support:
– 1.0750 (June low)
– 1.0707 (late-April swing low)
Resistance:
– 1.0800 (former support turned resistance)
– 1.0865 (prior short-term high)
Outlook:
– The break of 1.0800 confirms a bearish near-term trend.
– If euro bulls cannot reclaim that level, further downside toward the March lows near 1.0700 appears likely.
Traders will closely watch any additional economic data from the Eurozone to assess the ECB’s forward guidance. A hawkish shift is unlikely in the near term, barring a surprise in inflation trends.
GBP/USD Forecast
Sterling faced considerable volatility last week, rallying strongly early before reversing course following robust U.S. economic data. The Bank of England is set to hold its policy meeting later this month, and market participants are pricing in a rate cut in the second half of the year.
Key Fundamentals:
– UK economic data continues to suggest an easing of inflationary pressures, increasing the likelihood of BOE rate
Explore this further here: USD/JPY trading.