**U.S. Dollar Tests Weekly Highs: In-Depth Analysis for EUR/USD, GBP/USD, USD/CAD, and USD/JPY**
*By James Hyerczyk, originally published on FXEmpire*
The U.S. dollar has displayed resilient strength, testing weekly highs following a fresh round of economic data and persistent speculation about central bank activity. As major currency pairs react, traders are reassessing the near-term and longer-term technical and fundamental outlooks. In this comprehensive analysis, we delve into the price action and driving forces behind the EUR/USD, GBP/USD, USD/CAD, and USD/JPY pairs.
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## U.S. Dollar Strength: Key Catalysts
The recent bullish momentum in the U.S. dollar can be attributed to a convergence of several significant factors. Key highlights include:
– **Stubborn inflation metrics**: U.S. consumer price and producer price index readings have consistently remained above the Federal Reserve’s 2% target, raising questions about the timeline for potential rate cuts.
– **Firm jobs market data**: Nonfarm payrolls and unemployment claims continue to indicate a robust labor market, which supports hawkish monetary policy sentiment.
– **Sticky central bank messaging**: Recent Federal Reserve statements have leaned more cautious, with policymakers emphasizing the need for additional evidence before considering rate easing.
– **Geopolitical tension and risk aversion**: Ongoing uncertainty in key global regions has sparked safe-haven flows into the U.S. dollar.
This multifaceted support has pushed the U.S. Dollar Index (DXY) toward the higher end of its recent range. The path forward, however, depends on how global central banks, especially the European Central Bank (ECB), Bank of England (BoE), Bank of Canada (BoC), and Bank of Japan (BoJ), react to evolving macroeconomic trends.
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## EUR/USD Technical and Fundamental Outlook
The euro’s performance against the dollar reflects the dual impact of a cautious ECB and the dollar’s ascendancy. After attempting a modest recovery, the pair retreated, testing significant support levels as the week unfolded.
### Fundamental Summary
– **ECB Dovishness**: ECB officials have signaled comfort with market expectations for rate cuts, especially as eurozone inflation moderates and growth shows signs of fragility.
– **U.S.–Eurozone divergence**: Persistent economic divergence between the U.S. and euro area, visible in growth and inflation measures, is putting pressure on the euro.
### Technical Perspective
– **Support, Resistance and Price Action**:
– Key support exists in the 1.0650–1.0670 area. A clear daily close below this level opens risk of a move to 1.0600.
– Overhead resistance appears at 1.0710 and is reinforced at 1.0740.
– **Momentum Indicators**: Most oscillators suggest a bearish short-term bias while momentum slows, hinting at the risk of a further decline before any meaningful rebound.
### Potential Scenarios
– A decisive break below 1.0650 may trigger stop losses and accelerate downside toward the March lows.
– Any stabilization above 1.0700 would require a significant weakening in U.S. data or unexpected hawkishness from the ECB.
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## GBP/USD Analysis: Sterling on the Defensive
The British pound’s recent performance against the dollar has mirrored the cautious stance of the Bank of England and the dollar’s overall strength. With inflation showing signs of receding and growth struggling, GBP/USD has faced stiff selling pressure.
### Fundamental Context
– **UK Inflation and Growth**: While services inflation remains sticky, headline data is moving closer to the BoE’s target, giving policymakers room to consider cutting rates in the coming months.
– **BoE Communication**: Recent comments from policymakers indicate a wait-and-see approach, with data dependency a recurring theme.
– **Political factors**: Upcoming general elections could introduce additional volatility.
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