Title: Forex Analysis: US Dollar Weakens in Early Monday Trading; EUR/USD, USD/JPY, and AUD/USD Outlook
By FXEmpire’s Christopher Lewis
Overview
At the beginning of the trading week, the US Dollar exhibited a weaker tone against its major counterparts including the Euro (EUR), Japanese Yen (JPY), and Australian Dollar (AUD). This softening of the Dollar is perceived as a short-term pullback in an otherwise longer-term bullish trend. Amid investor anticipation of key economic data and Federal Reserve commentary later in the week, markets are exhibiting restrained directional momentum.
In this extended forex forecast, we delve deeper into the key drivers behind the current US Dollar movements and explore the technical outlook of the EUR/USD, USD/JPY, and AUD/USD currency pairs.
Key Factors Contributing to Dollar Weakening
Several factors appear to be weighing on the US Dollar at the start of the week:
– Expectation of key US economic data including inflation figures and retail sales figures later in the week.
– Anticipation of upcoming Federal Reserve commentary regarding monetary policy, which could clarify the central bank’s stance on interest rates.
– Short-term technical pullback after the greenback’s strong rally in previous weeks.
– Profit-taking by traders following the Dollar’s recent strength.
– Global investor caution ahead of significant geopolitical and economic events.
EUR/USD Technical and Fundamental Outlook
The EUR/USD pair experienced a slight increase in early Monday trading, reflecting some weakness in the US Dollar. However, the overall longer-term picture still appears to favor the Dollar, assuming the Federal Reserve remains on a hawkish trajectory.
Fundamentally, the Eurozone continues to struggle with stagnant economic growth. While inflation is still high enough to keep the European Central Bank from aggressively cutting rates, the region’s slowing productivity remains a concern for long-term Euro strength.
Key Influences on EUR/USD:
– Divergence in monetary policy between the Federal Reserve and European Central Bank.
– Economic activity in Eurozone countries, such as Germany and France.
– Inflationary and wage growth trends in both the Eurozone and the United States.
– Market positioning and sentiment toward safe-haven assets.
Technical levels to watch:
– Support: 1.0700 – This level remains a strong technical and psychological support, coinciding with prior consolidation zones.
– Resistance: 1.0900 – A break above this resistance could prompt fresh buying interest, but it remains a challenging barrier without improved fundamentals from the Eurozone.
Expectations:
– As long as the pairing trades below key resistance levels and fundamental macroeconomic divergence favors the US economy, EUR/USD is likely to be a “sell on rallies” market.
– Range-bound movement between 1.0700 and 1.0900 is likely in the near term unless US economic data significantly alters risk sentiment.
USD/JPY Technical and Fundamental Outlook
The USD/JPY pair experienced a minor pullback in early Monday trading. This can be attributed to a drop in US Treasury yields amid speculation about the Federal Reserve’s rate path. However, the pair remains within a pronounced uptrend, and any dips are perceived as opportunities for buyers to re-enter the market at better levels.
The Japanese Yen continues to suffer from long-standing monetary policy divergence. The Bank of Japan remains committed to ultra-loose monetary policy, with little immediate indication of lifting rates significantly. This imbalance supports continued weakness in the Yen and underpins USD/JPY upside.
Key Influences on USD/JPY:
– US bond yields, specifically the 10-year Treasury note.
– Intervention warnings from Japanese officials, especially if the Yen threatens to depreciate beyond psychologically important levels (e.g. 155 or 160).
– Inflation and wage trends in Japan, which could prompt the Bank of Japan to reconsider its dovish stance.
– Risk appetite globally, given the Yen’s reputation as a safe-haven currency.
Technical levels to watch:
– Support: 152.50 – A level that has acted as strong support during previous
Explore this further here: USD/JPY trading.