Original article by Vladimir Zernov, FXEmpire
Rewritten and Expanded for Clarity and Depth
Title: U.S. Dollar Weakens as Market Eyes Labor Market Data – Detailed Analysis on EUR/USD, GBP/USD, USD/CAD, and USD/JPY
The U.S. dollar experienced a decline against a basket of major currencies on Monday, as traders braced for key labor market data that could influence the Federal Reserve’s next monetary policy decisions. The DXY U.S. Dollar Index, a widely monitored measure of the dollar’s performance against six major currencies, edged lower to near 104.10. This came as market participants speculated that a potential softening in U.S. jobs data might pave the way for the Fed to begin cutting interest rates later this year.
The shift in market sentiment was reflected in various forex pairs, with the euro, British pound, Canadian dollar, and Japanese yen all seeing notable movements against the greenback. This article provides a data-driven, technical, and fundamental analysis of the following key currency pairs impacted by the prevailing economic sentiment:
– EUR/USD
– GBP/USD
– USD/CAD
– USD/JPY
General Market Sentiment
The U.S. dollar’s weakness was broadly attributed to the market’s anticipation of softer employment statistics and poor manufacturing data. The ISM Manufacturing PMI, released earlier, showed a contraction at 48.7, below expectations and reinforcing the narrative of a cooling U.S. economy. With non-farm payrolls data due later in the week, traders are recalibrating their expectations around potential Fed interest rate cuts.
Key drivers notable for the dollar’s downturn:
– Falling bond yields: The 10-year U.S. Treasury yield declined as bond investors positioned defensively before the jobs data.
– Dovish Fed expectations: Traders are now pricing in one or two rate cuts by the end of 2024.
– Global economic divergence: With signs of resilience in the Eurozone and UK, the dollar’s strength is under greater scrutiny.
Let’s take a deeper look at the individual currency pairs.
EUR/USD: Euro Gathers Momentum on Soft U.S. Data
The EUR/USD pair climbed as the dollar eased across the board. Investors reacted to the weaker-than-expected U.S. PMI data and reemerging euro strength in the wake of stronger European regional indicators and stable inflation readings.
Highlights:
– Current trading levels: EUR/USD is trading above the 1.0870 mark, experiencing resistance around the 1.0885 area.
– Technical momentum: The pair has broken above the key resistance of 1.0850, which now acts as an immediate support zone.
– RSI status: The Relative Strength Index remains below overbought thresholds, suggesting there is room for further upside without triggering a pullback.
– Resistance levels to watch:
– 1.0885: Short-term resistance
– 1.0910: Upper bound resistance with greater breakout potential
– Support levels:
– 1.0850: Immediate support
– 1.0820: A larger drop could find footing here
Fundamentally, the divergent outlook between the ECB and the Fed is becoming a pivotal factor. The European Central Bank has shown caution toward future rate cuts, emphasizing incoming data. In contrast, the market sees the Fed being more likely to cut rates amidst the cooling economy.
Outlook: Bullish in the near term if positive sentiment continues and U.S. payroll figures underperform expectations.
GBP/USD: Strong Rebound Driven by Risk Sentiment
The British pound capitalized on the dollar’s weakness, with GBP/USD advancing past the 1.2680 level early in the trading week.
Key Observations:
– The pair regained bullish momentum amid broadly weaker dollar behavior.
– GBP/USD has room to test resistance at the 1.2700 psychological level if U.S. economic weakness persists.
– Technical indicators signal potential upward continuity:
Read more on EUR/USD trading.