**US Dollar Rebound Appears Corrective: EUR/USD and GBP/USD Set to Bounce**
*Based on the analysis and article by Matt Weller, FOREX.com*
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The recent movements in the US dollar have caught the attention of many traders and market analysts. After showing signs of strength throughout the previous week, the dollar is now exhibiting what appears to be a corrective rebound. Currencies such as the euro (EUR/USD) and the British pound (GBP/USD) are showing technical setups that indicate the potential for near-term bounces against the greenback. This article, following Matt Weller’s original insights for FOREX.com, analyzes the short-term corrective nature of the dollar’s upsurge and explores the technical and macroeconomic underpinnings that underscore the next moves for major FX pairs.
## US Dollar Index: Correction Mode
The US Dollar Index (DXY), a measure of the dollar’s strength against a basket of major currencies, experienced its strongest rally in weeks. This surge was mainly driven by a confluence of elevated risk aversion, safe-haven flows, and shifts in interest rate expectations tied to recent US economic data.
– DXY rallied to test key technical resistance levels near 105.00.
– The move followed a period of subdued volatility and range trading, making the sharp rebound more prominent.
– Despite this rebound, broader technical signals point toward the rally being corrective rather than a structural shift in the trend.
### Technical Signals on DXY
The technical landscape paints a fascinating picture regarding the sustainability of the dollar’s latest move:
– The index remains below the descending trendline from its 2023 highs, suggesting that larger trend forces remain bearish.
– Overbought readings on shorter-term oscillators (such as RSI and Stochastics) reinforce caution for dollar bulls.
– Immediate resistance at 105.00 is complemented by additional resistance at 105.50, while support rests near 104.00 and 103.50.
## Macro Backdrop: What’s Fueling the Greenback?
The fundamental undercurrents driving the US dollar’s latest rally revolve around economic data, Federal Reserve policy expectations, and risk sentiment.
### Key Points:
– Robust US labor market data reduced bets on aggressive near-term Fed rate cuts. Strong employment numbers and stickier-than-expected inflation have forced markets to recalibrate their outlooks for monetary policy.
– Interest rate differentials widened slightly as the European Central Bank (ECB) and Bank of England (BoE) signaled more dovish tones compared to the Federal Reserve.
– Global risk aversion, triggered by geopolitical uncertainties and stock market corrections, amplified flows into the US dollar as a safe-haven.
Despite these drivers, several factors suggest that the dollar’s uptrend is not set in stone:
– Economic surprise indexes for the US have flattened, hinting at normalization in economic outperformance.
– The market may have become overly optimistic about persistent US exceptionalism.
– Any shift in the global risk environment or signs of renewed softening in US economic data could undercut the recent dollar strength.
## EUR/USD: Approaching Inflection Point
EUR/USD, the most traded currency pair globally, faces a critical juncture after slipping toward key support levels. The pair has declined roughly 200 pips since last week’s highs but technical and sentiment cues indicate stabilization and possibly a short-term recovery.
### Technical Setup for EUR/USD
– Support has been found near 1.0800, a previously tested level acting as both psychological and structural support.
– The recent selloff has brought momentum indicators into oversold territory, a traditional precursor to corrective rallies.
– Short-term resistance is located at 1.0880, followed by 1.0950.
Traders are watching several signals:
– A bullish reversal candlestick (such as a hammer or bullish engulfing) on the daily chart could mark the beginning of a technical bounce.
– The 20-period moving average remains a dynamic resistance
Read more on GBP/USD trading.