**U.S. Dollar Technical Outlook: Setups in EUR/USD, GBP/USD, USD/JPY, and USD/CAD**
*Based on an article originally written by James Stanley for FOREX.com*
The U.S. Dollar has maintained its dominance through mid-2024, underpinned by a resilient U.S. economy and higher-for-longer interest rate expectations from the Federal Reserve. While the greenback saw a significant rally in the first quarter, recent price action suggests that momentum may be stalling. This article breaks down the current technical outlook for the U.S. Dollar against key currency pairs: EUR/USD, GBP/USD, USD/JPY, and USD/CAD. Additionally, we examine macroeconomic and sentiment drivers contributing to current trends and possible scenarios moving forward.
## U.S. Dollar Index: Is Momentum Topping Out?
The U.S. Dollar Index (DXY), a measure of USD strength against a basket of six major currencies, surged throughout the early months of 2024. However, in recent weeks, bullish momentum has shown signs of fatigue. After pushing above the 105.00 handle, the index encountered resistance just ahead of 106.00, forming a possible double top pattern, often seen as a bearish reversal signal in technical analysis.
Key technical developments:
– The DXY has formed a possible lower high near 105.75 after failing to sustain a breakout above the late 2023 highs.
– Daily RSI readings are showing bearish divergence, indicating slowing bullish momentum.
– A break below key support at 104.50 could open the door for a deeper pullback toward 103.60, and possibly 102.80 in the medium term.
– On the upside, a break above 106.20 would invalidate bearish signals and reignite a bullish scenario.
## Macro Themes in Focus
Before diving into the individual currency pairs, it’s important to understand the broader macroeconomic context guiding USD price action:
– The Federal Reserve has maintained a hawkish tone despite inflation cooling slightly, signaling rates may remain elevated into late 2024.
– Economic data out of the U.S. continues to outperform many other G10 economies, especially in labor markets and retail spending.
– Fed rate cut expectations have been pushed back, with markets pricing in fewer cuts than at the beginning of the year.
– Global demand for USD remains strong due to geopolitical risks and a shifting landscape in commodity trade, with oil priced in strong demand currencies.
## EUR/USD: Bulls Defend Key Support, Bearish Structure at Risk
EUR/USD has been under heavy pressure since peaking above 1.1130 in late December 2023. The pair has formed a consistent series of lower highs and lower lows, indicating a persistent bearish trend. However, key support zone near 1.0600 has held firm thus far.
Technical highlights:
– Major support at 1.0600 has led to short-term consolidation; a break below could trigger a move toward 1.0500.
– Resistance now looms near 1.0800, aligning with the 100-day moving average and former swing highs.
– Fibonacci retracement from the October 2023 low to the December high shows possible interim resistance at 1.0765 (61.8% retracement).
– Bullish divergence on daily RSI suggests possible reversal; however, bulls need to reclaim 1.0800 to confirm.
Macro backdrop:
– The European Central Bank (ECB) has leaned dovish in recent statements, giving the EUR little support.
– Disparate economic performances across eurozone nations have contributed to downbeat investor sentiment.
– Eurozone inflation remains stubborn, but forecasts for rate cuts in mid-to-late 2024 persist.
Strategy implications:
– Short positions remain favorable below 1.0800, targeting 1.0600 and 1.0500.
– A weekly close above 1.0800 would shift the tone, opening a move toward 1.
Read more on USD/CAD trading.