Title: Weekly Forex Forecast: DXY, EUR/USD, GBP/USD, and USD/CAD Analysis (June 3 – June 7, 2024)
Original article by: Tareq Sikder
Adapted and expanded upon for educational purposes
As the financial markets head into the week of June 3 to June 7, 2024, forex traders are monitoring economic indicators and technical signals across major currency pairs. Key players such as the US Dollar Index (DXY), EUR/USD, GBP/USD, and USD/CAD provide valuable insights into overall market sentiment and potential price direction. This forecast blends both fundamental and technical analysis to give traders a robust guide to the upcoming week.
Overview of Market Sentiment
The U.S. dollar experienced a downward trend in the past week, driven largely by weaker-than-expected U.S. economic data. Market expectations for future rate cuts from the Federal Reserve are mounting, especially after softer inflation figures and mixed labor market signals. These dynamics are influencing not just the U.S. dollar but also its major counterparts, including the euro, pound, and Canadian dollar.
Let’s take a deeper look into the individual market instruments.
U.S. Dollar Index (DXY) Forecast
The U.S. Dollar Index (DXY), which measures the performance of the dollar against a basket of six major currencies, currently hovers around 104.66. This reflects a notable retreat from its recent May highs near 105.8.
Key Technical Insights:
– The DXY has fallen below its 20-day and 50-day exponential moving averages, which were serving as dynamic support levels, suggesting that short-term bearish sentiment is gaining strength.
– The next key support is located near 104.00, corresponding to a Fibonacci 61.8% retracement level and an area that has acted as support in past consolidations.
– Resistance is seen at 105.00 and 105.80, which were previous highs and psychological levels.
Fundamental Drivers:
– Market participants are interpreting the May PMIs and labor market data as indicators that the U.S. economic momentum may be slowing. This increases the likelihood that the Federal Reserve could begin easing policy sooner than previously forecasted.
– Fed officials have recently adopted a more balanced tone, leaving the door open for rate cuts as inflation data comes under control.
– Any surprise shift in inflation or jobs data could either accelerate or delay rate cut expectations, shifting dollar strength accordingly.
Outlook:
Given the current data and technical structure, the outlook for the U.S. dollar in the upcoming week leans bearish. However, major economic events such as the ISM services PMI and the Nonfarm Payrolls (NFP) report could cause volatility.
EUR/USD Forecast
EUR/USD has gained strength in recent sessions, bolstered by weakness in the dollar and relatively stable European data. The pair closed last week near the 1.0840 level after starting at approximately 1.0760.
Key Technical Insights:
– EUR/USD has broken above a resistance trendline that had been holding the pair back for several weeks, triggering a bullish breakout pattern.
– The 20-day exponential moving average is sloping upward and is currently acting as dynamic support around 1.0780.
– Immediate resistance is found at the 1.0900 psychological level, while support is near 1.0800 and then at 1.0720.
Fundamental Drivers:
– Eurozone inflation data has remained sticky, causing the European Central Bank (ECB) to hesitate on immediate rate cuts despite slowing growth.
– However, the ECB is expected to cut rates soon, possibly as early as this month, though their guidance suggests that any easing will be gradual.
– The divergence between Fed policy (pivoting to easing) and ECB policy (holding or slightly easing) is shrinking, supporting the euro in the short term.
Outlook:
Expect EUR/USD to remain in a bullish bias as long as it holds above
Read more on USD/CAD trading.