Title: Pre-FOMC US Dollar Price Action Setups: EUR/USD, USD/JPY, USD/CAD, GBP/USD
Original Article By: James Stanley, Forex.com
Rewritten and Expanded Version for Informative Purposes
The lead-up to the Federal Reserve’s latest policy announcement has set the stage for significant moves in US Dollar-based currency pairs. With the central bank under scrutiny for its stance on future interest rate adjustments, traders are analyzing every detail to understand potential reactions across the forex market. As the June FOMC (Federal Open Market Committee) meeting approaches, technical setups involving key USD pairs are gaining attention.
Markets are not anticipating a rate hike this time, but the tone of the Fed’s statement, along with updated economic projections and remarks from Chair Jerome Powell, may shape expectations for the remainder of 2024. The US Dollar Index (DXY), along with major pairs like EUR/USD, USD/JPY, USD/CAD, and GBP/USD, present distinct narratives influenced by evolving economic data and growing central bank divergence across global markets.
This article dives deep into the current technical patterns and price action setups for these major USD pairs, providing insights and potential scenarios traders should watch carefully in the days surrounding the FOMC meeting.
US Dollar Index (DXY): Support Held, Eyes on Resistance
The US Dollar Index (DXY), which tracks USD performance against a basket of leading currencies, has continued to consolidate near critical support levels ahead of the Fed meeting.
Key Technical Highlights:
– The DXY last week tested the 104.50 area, a pivot support zone that has consistently played a role in price behavior during Q2 2024.
– While the index experienced a modest bounce, it remains below the 105.75 area, which currently serves as resistance. This level also aligns with the 50-day simple moving average (SMA), underscoring its relevance.
– Momentum to the upside has been lackluster, suggesting markets are cautious and awaiting direction from the Fed.
Outlook:
– If DXY can push and hold above the 105.75 resistance area, potential upside targets include 106.25 followed by a retest of the Q2 high around 106.50.
– On the downside, failure to maintain support at 104.50 would open the door for further weakness toward 103.80 and potentially 103.00.
EUR/USD: Support Break Threatens Deeper Pullback
The euro has remained under pressure against the dollar, particularly following the latest policy decision from the European Central Bank (ECB), which voted to cut interest rates. The ECB’s dovish tilt has reinforced policy divergence between the eurozone and the United States, where interest rates remain high and steady.
Technical Breakdown:
– EUR/USD recently revisited the 1.0725 support level, a zone that has previously acted as a springboard for bulls in late May.
– A bearish break below this support has triggered further weakness toward the 1.0675 mark, a key Fibonacci retracement level from the March–April rally.
– The pair has failed to regain strength, consistently trading below the 200-day SMA, indicating underlying bearish sentiment.
Outlook:
– A continuation of euro weakness could drag the pair down to the 1.0600 handle, representing a critical support level observed in early April.
– On the flip side, a dovish FOMC surprise or signs of US economic weakness could prompt EUR/USD bulls to retarget 1.0775 followed by the 1.0860 April swing high.
USD/JPY: Bulls in Control as Rate Differentials Expand
The divergence in monetary policy between the Federal Reserve and the Bank of Japan continues to fuel demand for USD/JPY. Japan’s central bank has maintained extremely accommodative stance, with negative rates giving investors reason to short the yen and buy higher-yielding currencies such as the US dollar.
Key Technical Features:
– USD/JPY has firmly
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