**Weekly Forex Forecast: DXY, EUR/USD, GBP/USD, USD/CAD
Original analysis by Dhwani Mehta for ForexFactory.com**
**Overview**
In the wake of significant central bank events and shifting market expectations, this week’s forex forecast will focus on the US Dollar Index (DXY), EUR/USD, GBP/USD, and USD/CAD. Recent volatility has followed the June Federal Reserve meeting, softening inflation data in the United States, and a series of responses across major central banks, most notably the European Central Bank and the Bank of England. With the market’s anticipation finely tuned to US data releases and policymakers’ signals, currency trends this week hinge on the sensitive interplay between Fed rate cut prospects and growth projections across the Atlantic economies.
This in-depth analysis reviews the latest price action, technical patterns, and the macroeconomic context for each of these currency pairs. The aim is to provide traders with actionable insights for the week ahead.
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**US Dollar Index (DXY): Key Drivers and Technical Overview**
After an eventful FOMC week and major inflation prints, the US Dollar Index experienced notable swings. The highlight was the stark discrepancy between the Fed’s continued hawkish posture and the overt softening in US Consumer Price Index (CPI) and Producer Price Index (PPI) data.
**Primary market factors influencing DXY this week:**
– **Divergence between Fed and Market Rate Outlook**: While Fed projections suggest only one rate cut in 2024, market-derived expectations surged after the cooler-than-anticipated CPI for May. There is now growing consensus on two 25 basis point cuts, with odds of the first cut in September rising above 70 percent.
– **Yield Reaction**: US Treasury yields fell sharply, particularly at the front end of the curve, reflecting the market’s rapid recalibration of rate cut probabilities. The US 2-year yield dropped 25 bps from its mid-week high.
– **Broad Dollar Weakness**: The Dollar’s losses were broad-based, seen sharply against the Euro and Pound but contained versus the Canadian Dollar, with commodity-linked sensitivities in play.
**Key upcoming data/event risks for the DXY:**
– US Retail Sales (Tuesday): Expected to rebound, any miss could reinforce Dollar bears.
– Weekly Jobless Claims (Thursday): Persistent upside in claims would add pressure.
– Fed Speakers: Testimonies and speeches by Fed officials could either align with or counteract the latest dovish market narrative.
– Existing Home Sales (Friday): Less direct, but further indications of consumption or housing market fragility would heighten focus on policy pivots.
**DXY Technical Analysis:**
– DXY finished the week below the key 50-day and 100-day simple moving averages, finding tentative support near 104.40.
– Immediate resistance stands near 105.00, which was a support zone turned resistance.
– Breakdown below 104.20 may see an acceleration toward the March lows near 103.90 and beyond.
– Oscillators such as RSI lean bearish but not extremely oversold, allowing scope for further depreciation.
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**EUR/USD: Momentum Shifts after Divergence at Central Banks**
The EUR/USD pair capitalized on the dual forces of a dovish Fed surprise and the ECB’s June decision. The latter delivered the much-expected 25 bp rate cut but sent a modestly hawkish message about the rate trajectory ahead.
**Key drivers for EUR/USD:**
– **US Data-Driven Dollar Movements**: The pair’s upside last week largely owed to US inflation and Fed disappointment for Dollar bulls.
– **ECB Policy Path**: ECB remains cautious about further cuts, with President Lagarde emphasizing data-dependency. This helped anchor Euro downside, despite a cut.
– **Risk Sentiment**: Persistent optimism in risk assets, especially equities, adds another tailwind for EUR/USD.
**Upcoming data and risk events:**
– Final Eurozone
Read more on GBP/USD trading.