**Weekly Forex Forecast for DXY, EUR/USD, GBP/USD, and USD/JPY**
*Credit: Justin McQueen, ForexFactory.com*
**Introduction**
The forex market exhibits continual movement, dictated by a mix of technical patterns and fundamental data rebalancing. As traders seek to make sense of market direction ahead of key economic releases and central bank action, a methodical analysis of critical pairs and indictors is essential. This week’s outlook hones in on the U.S. Dollar Index (DXY), EUR/USD, GBP/USD, and USD/JPY. Each currency pair reflects unique risk sentiments, economic trajectories, and technical postures.
**U.S. Dollar Index (DXY): Bullish Momentum and Key Levels**
The DXY closed the last week on a solid footing, buoyed by better-than-expected U.S. data and growing expectations that the Federal Reserve will maintain higher rates for an extended period. These expectations have reawakened dollar bulls, especially as central banks in Europe and elsewhere pivot towards dovishness.
– **Fundamental drivers:**
– U.S. economic data remain resilient, with labor and retail indicators surprising to the upside.
– Recent Federal Reserve commentary continues to push back against premature rate-cut expectations.
– Inflation readings, while moderating, still sit above the Fed’s 2 percent target, allowing hawkish rhetoric to persist.
– Geopolitical tensions, most notably in the Middle East and Eastern Europe, have kept risk-off sentiment simmering, which has historically benefited the greenback as a safe haven.
– **Technical Outlook:**
– The DXY has reclaimed the 105.00 handle, a key resistance turned support zone.
– Short-term moving averages have realigned to suggest further upside, with the 21-day EMA now crossing above the 50-day EMA.
– The Relative Strength Index (RSI) is holding in neutral territory, suggesting there is room for further upside before entering overbought conditions.
– Key resistance stands at 106.50, followed by 107.00. On the downside, initial support comes in at 104.60, with a deeper move lower targeting the 104.00 psychological level.
**Trading Considerations for DXY:**
– Continued long positioning may be favored while price sustains above 104.60.
– Watch for potential profit-taking and a pullback as the 106.50 resistance is challenged.
– Keep a close eye on upcoming U.S. Consumer Price Index data and FOMC minutes for near-term volatility cues.
**EUR/USD: Bearish Pressure Mounts as Divergence Grows**
EUR/USD has displayed notable vulnerability over the past week, falling below the 1.0700 threshold as European Central Bank (ECB) officials make increasingly dovish comments. The macroeconomic divergence between the United States and Eurozone remains stark.
– **Fundamental drivers:**
– Recent European data have undershot expectations, with German manufacturing and consumer activity stagnating.
– The ECB clearly signals readiness to cut rates ahead of the Federal Reserve, perhaps as soon as the June meeting. This has seen short-term euro rates decline relative to dollar rates.
– U.S. resilience contrasts with a Eurozone that still battles fragmented growth, most notably forced by fiscal constraints in major economies like Germany and Italy.
– Ongoing energy price pressures in Europe, stemming from geopolitical tensions and supply disruptions, impede recovery and keep the central bank cautious.
– **Technical Outlook:**
– EUR/USD broke below the 1.0720 region, a short-term support, and eyes remain set on the March lows at 1.0690.
– Moving averages on the daily chart demonstrate bearish alignment, with the 50-day crossing below the 200-day, cementing the medium-term downtrend.
– Momentum indicators such as the MACD remain in negative territory, confirming sellers’ control.
– Should
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