U.S. Dollar Regains Strength from Weekly Lows: Analysis of EUR/USD, GBP/USD, USD/CAD, USD/JPY
Original article by James Hyerczyk, FX Empire
The U.S. dollar reversed from its recent lows early in the trading week, finding renewed strength against a basket of major currencies. Expectations surrounding Federal Reserve interest rate policies and economic data, especially inflation and labor reports, continue to play a significant role in the greenback’s performance. This outlook examines recent price movements and technical conditions for major currency pairs, including EUR/USD, GBP/USD, USD/CAD, and USD/JPY.
Dollar Index Overview
The Dollar Index (DXY), which tracks the performance of the U.S. dollar against six major currencies, posted a minor gain after falling to a one-month low. This rebound comes amid reduced expectations that the Federal Reserve will cut interest rates in the near term.
Key Developments:
– The index found support near the 103.99 level, rallying to a high of 104.47.
– Traders turned more cautious about rate cut bets after last week’s strong economic data releases.
– The dollar recovery reflects resilient U.S. economic fundamentals and cautious Fed commentary.
As investors recalibrate their expectations regarding U.S. monetary policy, the greenback’s attractiveness as a safe-haven and yield-bearing asset has been restored.
EUR/USD: Euro Retreats After Approaching Resistance
The EUR/USD currency pair dropped after nearing key technical resistance and posting a six-week high. The retreat was driven by dollar strength and renewed caution ahead of this week’s U.S. economic data.
Key Observations:
– The euro had earlier climbed to 1.0916, testing the February 2024 high.
– Selling pressure developed as the dollar rebounded on the back of stronger expectations for prolonged interest rate stability.
– Economic data from the Eurozone remains mixed, weakening the euro’s bullish momentum.
Technical Analysis:
– Resistance is now firmly set at the 1.0915–1.0930 zone, with further key resistance at 1.0980 should the euro continue its advance.
– Immediate support is at 1.0850, followed by stronger buying interest near 1.0800.
– A break below 1.0780 may indicate a shift in short-term sentiment in favor of the dollar, signaling a potential decline toward the 1.0720 level.
Outlook:
The euro’s direction now largely hinges on macroeconomic data from both the Eurozone and the U.S., particularly upcoming inflation indicators. If the European Central Bank maintains its dovish posture while U.S. inflation remains sticky, the EUR/USD could see further downside.
GBP/USD: Pound Faces Resistance Below 1.2700
The British pound initially extended gains but met resistance near the 1.2700 level before retreating. The pair remains in an uptrend overall but faces headwinds due to resurgent dollar strength.
Key Drivers:
– The Bank of England has maintained a cautious stance on rate cuts, unlike the Federal Reserve, which remains data-dependent.
– Investors are awaiting clearer signs of cooling U.S. inflation before supporting further pound strength.
Technical View:
– Short-term resistance is identified near 1.2700. A breach of this area could set the stage for movement toward 1.2750.
– On the downside, support is located around 1.2610, followed by 1.2550, which could provide floors for future pullbacks.
Trend Analysis:
– GBP/USD continues to hold above its 50-day moving average, which acts as a dynamic support near the 1.2565 mark.
– Bullish momentum is intact as long as the pair remains above 1.2550.
Near-Term Risks:
– Any unexpectedly strong U.S. economic indicators could buoy the dollar further.
– Conversely, weaker-than-expected UK GDP or inflation data might shift the Bank of England’s tone toward easing, undermining
Explore this further here: USD/JPY trading.