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.
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