**US Dollar Eyes Breakout as EUR/USD, GBP/USD Probe Support, USD/JPY Rallies**
*By Rich Dvorak, FOREX.com*
The US dollar continues to garner significant attention in global markets, strengthening across the board as traders brace for potential breakouts and key central bank developments. The greenback’s performance against major rivals like the euro, British pound, and Japanese yen continues to shape the outlook for foreign exchange participants. In this article, we analyze the technical setups and fundamental drivers behind the US dollar’s current momentum, focusing on the USD Index (DXY), EUR/USD, GBP/USD, and USD/JPY, as the Federal Reserve and Bank of Japan loom large in sentiment.
### US Dollar Overview: Toward a Breakout
The US dollar index (DXY) has exhibited resilience through periods of volatility, bouncing from near-term lows and pressing higher on the back of robust US economic data and shifting expectations around monetary policy. The DXY, which tracks the dollar against a basket of major currencies, is now eyeing a potential breakout after defending key support zones.
**Key Drivers Supporting the Dollar:**
– **Strong Macro Data**: US GDP growth, resilient labor market figures, and solid consumer spending continue to outpace other developed economies.
– **Hawkish Federal Reserve Tone**: Despite market speculation over rate cuts in 2024, the Fed’s commitment to a data-dependent approach and concern over sticky inflation bolster the dollar.
– **Global Economic Divergence**: Sluggish growth in Europe and ongoing policy accommodation in Japan and elsewhere provide a relative advantage to the US currency.
Technically, the DXY has been consolidating within a well-defined range in recent months but now presses up against the upper boundary. The confluence of support at the mid-105 zone to 106 (prior resistance-turned-support) has held, paving the way for a potential attempt higher.
**Technical Factors:**
– The DXY’s 200-day moving average serves as a reference point for longer-term momentum. The recent ability to hold above this level reflects bullish undercurrents.
– Chart patterns, such as ascending triangles or symmetrical consolidations, may foreshadow breakouts into new multi-month highs if positive catalysts emerge.
### EUR/USD: Vulnerable as the Dollar Gains
The euro has encountered considerable headwinds, with EUR/USD losing ground and probing key support thresholds near the August and October lows. The juxtaposition of the US economy’s outperformance against the euro area’s stagnation is especially evident in the pair’s dynamics.
**Fundamental Pressures:**
– **Economic Data Disparity**: While the US remains buoyed by strong GDP and employment, Eurozone growth lags as Germany, France, and Italy struggle against weak manufacturing and fading consumer confidence.
– **ECB Policy Stance**: The European Central Bank recently paused its tightening cycle, citing weak demand and declining inflation. This has undermined euro support, particularly in contrast to a less dovish Fed.
**Key Technical Levels:**
– **Support**: The 1.0520-1.0500 area marks critical support, coinciding with prior lows. A sustained breakdown could trigger further losses toward 1.0400 and possibly the 2023 year-to-date low.
– **Resistance**: To the upside, initial resistance stands at 1.0600 before 1.0650, which aligns with recent swing highs and the 50-day moving average.
– **Momentum Indicators**: Relative strength index (RSI) readings are approaching oversold territory, but not yet signaling immediate exhaustion. Persistent bearish volume suggests sellers remain in control.
**What to Watch:**
– Any firm close below 1.0500 would embolden bears and potentially invite a retest of last year’s lows around 1.0350.
– Conversely, a sharp squeeze higher above 1.0600 could
Read more on GBP/USD trading.