**U.S. Dollar Tests New Highs as Rally Continues: Analysis for EUR/USD, GBP/USD, USD/CAD, USD/JPY**
*Based on the article by Vladimir Zernov for FXEmpire*
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The U.S. dollar has continued its upward trajectory, testing new highs as robust economic data and hawkish sentiment from the Federal Reserve create fertile ground for ongoing strength. Let’s analyze how the dollar’s momentum is impacting key currency pairs—EUR/USD, GBP/USD, USD/CAD, and USD/JPY—while factoring in the macroeconomic influences and market sentiment currently shaping the forex landscape.
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### The Backdrop: U.S. Dollar Rally Explained
Throughout 2024, the U.S. dollar has rallied against its major counterparts, surprising many traders who expected a more dovish turn from the Federal Reserve. Several macroeconomic drivers have contributed to the greenback’s exceptional performance:
– **Strong Economic Data:** U.S. employment, retail sales, and inflation data have consistently outpaced forecasts, reassuring investors of the resilience in the U.S. economy.
– **Fed’s Hawkish Tone:** The Federal Reserve remains cautious about cutting interest rates on the back of sticky inflation readings and solid labor market dynamics. Fed officials have tamped down speculation about imminent rate cuts, providing additional support for the dollar.
– **Geopolitical Uncertainty:** Global risks—ranging from ongoing tensions in Eastern Europe to instability in the Middle East—prompt risk aversion, steering traders toward the safe haven of the U.S. dollar.
– **Relative Growth Differentials:** While the U.S. economy expands at a solid pace, Europe and parts of Asia are experiencing stagnation or contraction, narrowing the appeal of other currencies relative to the dollar.
Recently, positive U.S. manufacturing and jobless claims data affirmed the prevailing narrative, lifting the dollar index to new multi-month highs.
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### EUR/USD: Pressured by Economic Divergence and Dovish ECB
**EUR/USD** has felt the brunt of the dollar’s ascent, declining to new multi-month lows as the European Central Bank takes a cautious, if not dovish, policy stance.
#### Key Drivers
– **ECB Rate Outlook:** The ECB has signaled that it could cut rates earlier than the Federal Reserve, especially as eurozone inflation slows and economic headwinds persist.
– **Weak Growth:** The eurozone economy continues to flirt with stagnation, weighed by sluggish industrial production and soft consumer spending.
– **Technical Breakdown:** As EUR/USD slid decisively below 1.0700, technical selling accelerated, compelling traders to further reduce euro exposure.
#### Technical Picture
– **Short-term support:** 1.0600, followed by 1.0500.
– **Immediate resistance:** 1.0800.
– Bears remain in control, and attempts at rebounds have repeatedly faded at key resistance levels.
– Momentum indicators suggest an oversold scenario, but without a clear catalyst, buying interest remains limited.
#### Outlook
As long as U.S. data outperforms and the Fed maintains a higher-for-longer posture, EUR/USD remains vulnerable to further declines. Only a dovish shift from the Fed or an unexpected surge in eurozone data would change the tide.
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### GBP/USD: Battling a Double Whammy of Dollar Strength and Domestic Challenges
**GBP/USD** has also struggled, with the British pound losing ground amid dollar bullishness and local uncertainties.
#### Key Drivers
– **Economic Uncertainty:** The UK faces slow growth, sticky inflation, and political uncertainty as a general election looms. Consumer confidence is shaky, and business investment remains soft.
– **Bank of England’s Position:** The BoE is less dovish than the ECB but more neutral than the Fed. Signals of potential rate cuts later in the year have surfaced as inflation moderates.
– **Technical Factors:** The pair broke below key support at 1.2500, opening the door to further
Read more on GBP/USD trading.