Title: US Dollar Outlook and Major Currency Setups: Gold Breakout, EUR/USD, USD/CAD, USD/JPY
Author: Based on analysis by James Stanley, Forex.com, with additional data from FXStreet and DailyFX.
The US Dollar has been in the spotlight recently, responding to evolving US monetary policy expectations, global risk sentiment, and technical chart developments. Renewed market volatility, central bank divergence, and inflation data releases are influencing price action across major currency pairs. In this article, we delve into the current state of the US Dollar, with in-depth discussions on EUR/USD, USD/CAD, USD/JPY, and Gold (XAU/USD), providing a comprehensive technical and fundamental assessment of price action setups.
Overview of the US Dollar
The US Dollar (DXY) has experienced a mild retreat from recent highs, as markets recalibrate their expectations for Federal Reserve rate cuts amidst sticky inflation and varied economic data points. After reaching a key resistance point earlier in the year, the Dollar Index has encountered some pressure from profit-taking and contrasting economic releases.
Key Drivers Impacting the Dollar:
– Federal Reserve Outlook: While inflation remains above target, the Fed maintains a cautious approach, with Chair Jerome Powell suggesting that rate cuts are likely in 2024, but not immediately. Fed funds futures have begun to price in one or possibly two cuts later in the year.
– Economic Data: Recent Non-Farm Payrolls (NFP) figures, consumer sentiment readings, and inflation data have produced mixed signals. While employment remains strong, inflation persistence and consumer uncertainties have created push-and-pull dynamics for the Dollar.
– Global Risk Sentiment: A more stable risk environment has slightly weakened the Dollar’s safe-haven appeal. Investors are rotating into risk assets, challenging the Dollar’s upward momentum. However, global geopolitical tensions or economic disruptions could quickly restore demand.
On the technical side, the DXY is testing support in the range between 103.50 and 104.50, a zone that has seen major inflection points over the past twelve months. A break below 103.50 could signal a deeper retracement towards 102.75 or even 101.80.
Major Currency Setups to Watch
Gold (XAU/USD): Technical Breakout in Progress
Gold has broken through a prolonged wedge formation, signaling bullish momentum returning amidst Dollar softness. With interest rates expected to decline later in the year and ongoing central bank gold purchases, gold has reclaimed the psychological $2,000 per ounce level.
Technical Highlights:
– Breakout from wedge resistance above $2,030.
– Immediate resistance at $2,065, and then previous highs at $2,075 and $2,078.
– Support rests at the prior wedge resistance (now turned support) between $2,020 and $2,030.
– Momentum indicators like the RSI support bullish continuation, though overbought conditions must be monitored.
Fundamental Impact:
– Gold remains sensitive to real yields. If US Treasury yields start falling due to dovish central bank expectations, gold can extend gains.
– Increased demand from central banks and ETF accumulation further supports gold prices.
Key Levels to Watch:
– Resistance: $2,065, $2,078, and the all-time high near $2,090.
– Support: $2,030, followed by $2,000 and $1,975.
EUR/USD: Testing Major Resistance as Bullish Reversal Forms
The Euro has staged a recovery against the US Dollar, as signs point to potential bottom formation in this major pair. EUR/USD reclaimed support at the 1.0700 level and is now pushing toward critical resistance at 1.0900.
Technical Analysis:
– EUR/USD appears to be forming a double bottom around 1.0700.
– A break above 1.0900 opens the door to the psychological level of 1.1000.
– The 200-day moving average is flattening near 1
Read more on USD/CAD trading.