Title: US Dollar Reaches Four-Month High Before Pulling Back: Analysis of USD, EUR/USD, GBP/USD, USD/JPY, and USD/CAD Trends
Original article credit: James Stanley, FOREX.com
Additional reference sources: Investing.com, MarketWatch, Reuters, Bloomberg
The US Dollar surged to its highest level in four months before experiencing a pullback during the latter half of last week. Strong economic data from the United States, along with hawkish commentary by Federal Reserve officials, played a key role in boosting the greenback across various forex pairs. However, as traders reacted to overbought conditions and shifting sentiment late in the week, the USD gave back some of its earlier gains.
This analysis explores the recent price action of the US Dollar against several major currencies, including EUR/USD, GBP/USD, USD/JPY, and USD/CAD. These currency pairs saw notable volatility as traders repriced interest rate expectations and responded to varying economic data releases.
US Dollar Index (DXY) Trends
The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, touched levels not seen since early November 2023. The index rallied to a high of 106.51 before retreating going into the weekend.
Key drivers of the USD strength included:
– Better-than-expected US economic data such as robust retail sales, lower-than-expected initial jobless claims, and higher-than-projected CPI data.
– Continued resilience of the US labor market.
– Persistent inflationary pressures that have kept expectations of interest rate cuts from the Federal Reserve pushed further out into the year.
– Hawkish messaging from Fed Chair Jerome Powell and other central bank officials emphasizing data dependency and patience on rate decisions.
However, technical resistance and more mixed sentiment regarding the timing of future rate cuts contributed to a modest pullback in the DXY. Heading into the new week, the 105.87 level remains an important support marker, followed by 105.52 and 105 psychological level.
EUR/USD Pulls Back, Then Finds Support Near 1.06
The Euro fell sharply over the past week as the US Dollar rallied. EUR/USD dropped from above 1.08 in early April to lows near 1.06 before stabilizing into the weekend. The move was driven more by USD strength than Euro weakness, although dovish actions and rhetoric from the European Central Bank also weighed on the single currency.
Key factors for EUR/USD price action:
– The pair hit a six-month low midweek, with 1.0600 serving as interim support.
– The European Central Bank (ECB) has signaled that it is more likely to begin cutting rates in June given subdued inflation trends in the eurozone and weaker economic momentum.
– Technical analysis shows a key support level around 1.0600, while resistance looms near 1.0695 and 1.0725.
Looking ahead:
– Any signs of a more balanced stance from the Fed or upside surprises in European economic data could offer room for a bounce in EUR/USD.
– Conversely, a continued divergence in US and European policy outlooks would likely keep the pair under pressure.
GBP/USD: Cable Weakens but Holds Key Support
The British Pound also faced downside pressure due to USD strength, falling against the US Dollar during the earlier part of the week. GBP/USD dropped below the 1.2500 level but found support before breaking significantly lower.
Key developments in GBP/USD:
– UK economic data, including GDP, has come in better than forecast in recent weeks, helping the Pound hold up better than the Euro.
– The Bank of England is signaling caution about rushing into rate cuts, especially amid a sticky services inflation rate.
– GBP/USD reached six-month lows near 1.2445 but staged a modest recovery afterwards.
Technical notes:
– Resistance lies at 1.2535 followed by 1.2580.
– Support near 1.244
Read more on USD/CAD trading.