US Dollar Forecast: Bearish Market Signals Emerge – Setups on EUR/USD, GBP/USD

Fundamental and Technical Overview

The recent performance of the U.S. dollar, as indicated by the DXY index, has shown a significant retreat, marking its lowest point since April 10th. This decline can be attributed to various factors, including falling U.S. 

Treasury yields following the Federal Reserve's monetary policy announcement and weaker-than-anticipated U.S. employment numbers. These events collectively contributed to a nearly 1% drop in the DXY, settling just above the 105.00 mark.

Factors Influencing the Dollar's Decline

Initially, the decline was instigated by Fed Chair Powell's dovish remarks at the central bank’s last meeting, suggesting that a rate cut remains a likely policy move despite escalating inflation risks. 

This sentiment was further reinforced by the US non-farm payrolls report, revealing unexpected cooling in job creation alongside softer wage pressures.

Short-Term Outlook

Looking ahead, the prospect of Fed easing regardless of economic conditions, coupled with signs of economic fragility reflected in recent data, is expected to keep bond yields from rising, removing a bullish catalyst that previously supported the U.S. dollar. 

Consequently, further weakness in the short term is anticipated, particularly during the initial part of the month.

EUR/USD Forecast: Technical Analysis

EUR/USD exhibited a rally in the past week, surpassing several resistance zones and nearing the 50-day and 200-day SMA. 

Bears must keep prices below these indicators to contain upside momentum. Failure to do so could trigger a move towards trendline resistance at 1.0830, with attention on a key Fibonacci barrier near 1.0865.

Potential Reversal Scenarios

In the event of a bearish reversal, minor support areas are identified at 1.0750, 1.0725, and 1.0695, followed by a significant focus on the week’s swing low around 1.0645, and subsequently, April’s low near the psychological 1.0600 mark.

GBP/USD Forecast: Technical Analysis

GBP/USD also experienced an upward movement but lacked impulse, failing to close above the 200-day simple moving average. 

Traders are advised to monitor this indicator closely, as a decisive breakout could lead to a retest of confluence resistance near 1.0620.

Support and Resistance Levels

On the downside, support ranges from 1.2515 to 1.2500. Bulls need to sustain prices above this range to mitigate the risk of escalating selling pressure, which could drive the pair towards 1.2430. 

Further declines may target the 1.2300 handle.

Q&A Section

Q1: What factors contributed to the recent decline in the U.S. dollar?

A1: The recent decline in the U.S. dollar can be attributed to falling U.S. Treasury yields, dovish remarks from Fed Chair Powell, and weaker-than-expected U.S. employment data.

Q2: What is the short-term outlook for the U.S. dollar?

A2: The short-term outlook suggests further weakness in the U.S. dollar, driven by prospects of Fed easing and signs of economic fragility.

Q3: What are the key technical levels to watch for in the EUR/USD and GBP/USD pairs?

A3: In EUR/USD, key levels to watch are the 50-day and 200-day SMA, trendline resistance at 1.0830, and support levels around 1.0645 and 1.0600. In GBP/USD, monitor the 200-day SMA and support/resistance zones near 1.2515, 1.2500, and 1.2430.