**EUR/USD, USD/JPY, and AUD/USD Forecast: U.S. Dollar Gains Momentum**
*Originally reported by James Hyerczyk on FXEmpire.com*
The U.S. dollar showed renewed signs of strength at the start of the trading week, benefiting from a shift in global macroeconomic sentiment. With the Federal Reserve maintaining a firm stance on interest rates and traders recalibrating expectations around policy easing, key currency pairs like EUR/USD, USD/JPY, and AUD/USD reflected the greenback’s bullish momentum.
This forecast analyzes how each of these major currency pairs is reacting to current market forces and what lies ahead for traders. A stronger U.S. dollar, driven by hawkish Fed rhetoric and cooling expectations for aggressive interest rate cuts, has been at the forefront of recent price action.
## U.S. Dollar Fundamentals: What’s Driving the Surge?
The U.S. dollar rebounded on Monday, supported by a combination of robust U.S. economic data and renewed concerns over inflation, which suggest the Federal Reserve could delay rate cuts further into 2024.
Key supporting factors for the dollar include:
– **Federal Reserve’s Hawkish Outlook**: Several Fed officials, including Chair Jerome Powell, have hinted that current inflation levels remain “unacceptably high,” reinforcing expectations that interest rates could remain elevated for an extended period.
– **Sticky Inflation Data**: While inflation has declined from its peak, core price pressures—particularly services inflation—have proven stubborn, reducing the likelihood of near-term policy easing.
– **Resilient U.S. Labor Market**: The labor market remains tight, with a low unemployment rate and solid job creation, which supports consumer spending and limits the urgency for monetary easing.
– **Improved U.S. Economic Performance**: Compared to global peers, the U.S. economy continues to perform strongly, particularly when juxtaposed with data from the Eurozone and Australia.
Let’s break down how major currency pairs are responding in this evolving landscape.
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## EUR/USD Technical Analysis and Outlook
The euro fell sharply against the U.S. dollar, dipping below key technical thresholds as traders shifted back into dollar-favoring positions. EUR/USD opened the week on the defensive, pressured by disappointing Eurozone economic performance and hawkish Fed rhetoric.
**Key developments affecting EUR/USD:**
– **Technical Breakdown**: EUR/USD dropped below the key support level of 1.0840, triggering a wave of technical selling. The break also pushed the pair further below its 50-day and 200-day moving averages, confirming bearish momentum.
– **Eurozone Economic Struggles**: Recent data points to a faltering recovery in the Eurozone. Weak consumer demand, sluggish manufacturing output, and falling business sentiment indexes have all weighed on the euro.
– **Divergence in Central Bank Outlooks**: While the Federal Reserve maintains a cautionary outlook on rate cuts, the European Central Bank (ECB) appears more inclined to begin easing, further widening the policy gap.
**Technical snapshot:**
– Resistance levels: 1.0840, followed by 1.0880
– Support levels: 1.0790, then 1.0720
– RSI momentum: Bearish, with the Relative Strength Index dipping below 50
– Moving averages: Price trading below both 50-day and 200-day moving averages
**Outlook:** EUR/USD may continue to trend lower if U.S. data continues to outperform expectations. From a technical standpoint, a sustained move below 1.0790 could open the door toward 1.0720. On the flip side, any signs of ECB caution regarding monetary loosening could provide limited relief.
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## USD/JPY Analysis: Yen Weakens Amid BoJ Policy Divergence
The Japanese yen weakened further, sending USD/JPY higher as U.S. yields rose once again. The dollar’s resilience is finding strong support from diverging monetary policies between the Federal Reserve and the Bank of
Read more on EUR/USD trading.