**US Dollar Retreats as Pullback Continues: Analysis for June 2024**
*By Nick Cawley, originally published on Forex Factory*
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The US dollar slipped at the start of the week as its recent rally paused, inviting traders and analysts to consider whether a broader correction is underway or if this is simply a brief respite before the next leg up. With monetary policy, economic indicators, and global risk sentiment all in the flux, the following analysis reviews the current state of the US dollar, its catalysts, and the prospects for major USD pairs in the near term.
## Current State of the US Dollar
After peaking near annual highs following a sustained rally in May, the US Dollar Index (DXY) began to lose some upward momentum. The pullback comes as investors grow cautious regarding the Federal Reserve’s next moves, weighing upbeat economic data against sticky inflation and a mixed global macroeconomic landscape.
The DXY, which tracks the dollar against a basket of six major peers, remains elevated but has moved off recent highs, leading market participants to question the sustainability of the greenback’s dominance over the next quarter.
### Key Technical Levels
– **Recent Highs:** The DXY approached the 106 level in late May, a barrier that coincided with previous resistance from late 2023.
– **Immediate Support:** Price action suggests support may be found near 104.60, an area of former resistance that turned support after the breakout earlier this year.
– **Trendlines:** The main uptrend from 2024 lows remains intact, but a break below 104.60 could invite a deeper retracement to the 104.00 round-number mark.
## Fundamental Drivers
Several fundamental factors have contributed to the latest pullback and will be essential in guiding US dollar sentiment in the days and weeks ahead:
### 1. Federal Reserve Policy Uncertainty
– **Interest Rate Expectations:** Markets have dialed back aggressive bets on further Federal Reserve hikes, reflecting the Fed’s patient stance on future moves. While rates remain at multi-decade highs, officials signal a data-dependent approach.
– **Inflation Data:** Recent Consumer Price Index (CPI) figures showed persistent core inflation, but with headline numbers moderating, the Fed’s timing for potential policy easing remains unclear.
– **FOMC Communications:** FOMC members continue to emphasize the need for multiple months of lower inflation before considering cuts, leading to some unwinding of bullish USD positions.
### 2. Economic Resilience
– **Strong Jobs Market:** Nonfarm payrolls, unemployment data, and other labor market indicators remain robust, helping to underpin the dollar even as it encounters resistance.
– **Retail Sales and Growth:** First-quarter GDP showed unexpected resilience, with consumer and business spending outperforming expectations.
### 3. Global Macro Dynamics
– **Divergent Central Banks:** The European Central Bank (ECB), Bank of Japan (BoJ), and Bank of England (BoE) are at varying stages of their monetary cycles, contributing to volatility and periodic reversal in USD crosses.
– **Safe-Haven Demand:** Geopolitical risks and financial market volatility periodically boost demand for the dollar as a safe-haven asset, even as risk-on sentiment increases at times.
## Technical Overview: US Dollar Index (DXY)
The US Dollar Index’s technical structure still reflects a firm uptrend, but the latest downturn illustrates caution among buyers after a multi-week push higher.
### Chart Patterns
– **Ascending Channel:** The DXY continues to track within a rising channel from early 2024, with higher highs and higher lows providing a bullish backdrop.
– **Bearish Divergence:** Momentum indicators such as the RSI have begun to diverge from price, suggesting waning upside strength.
– **Short-term Moving Averages:** Immediate support comes from the 20- and 50-day moving averages, currently clustered near the 104.70 to 104.60 area.
### Key Take
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