US Dollar Index struggles at 103.4 resistance amid rising bond yields, impacting major currencies and gold.
ECB hints at a slower rate cut approach, affecting EUR/USD’s weakening trend.
USD/JPY rises post Bank of Japan meeting, while Sterling remains strong against the dollar.
Despite the gradual recovery in the last three weeks, the US Dollar Index faced difficulty breaking the resistance level around 103.4. The current outlook suggests that this resistance remains a focal point.
The rise in 10-year bond yields from 3.8% to 4.18% since the beginning of the year contributes to the dollar’s strength, although a weaker course is anticipated for the DXY this week. Major currencies, and also gold, continue to experience pressure.
The dollar’s recovery momentum this month has been largely supported by data indicating the sustained strength of the US economy. The cautious stance of Fed members regarding an early interest rate cut can be considered another factor bolstering the dollar.
However, the Fed’s indication of three interest rate cuts this year has led to increased speculation that the dollar’s strengthening will be limited in the medium term. Nevertheless, the dollar maintains its recovery momentum amid the current uncertain environment.
EUR/USD
All eyes are on the European Central Bank’s (ECB) policy meeting this week, with market participants aiming to anticipate the timing of potential rate cuts by the Fed. The market expectation suggests the ECB might implement five rate cuts this year, outpacing the Fed.
However, the ECB has indicated a slower and less aggressive approach to reducing borrowing costs compared to market expectations.
EUR/USD The euro’s weakening trend against the dollar this month has signaled a potential trend reversal. The upward movement observed since October faced resistance at 1.106 (Fib 0.786) by the end of the year.
The pair, now returning to the upper band of the ascending channel, has broken below the 1.09 support level, indicating a downward shift in the ascending channel as of this week.
From a technical standpoint, this outlook could exert downward pressure on EUR/USD, provided the average stays below 1.0934. Consequently, the initial support in the lower range will be observed around the 1.084 level. If this support is breached, a correction towards 1.06 may become plausible.
In the event of a potential recovery, close attention will be given to the last resistance level of 1.106, especially with day closes above 1.0934. Further upward movements beyond this level could bring the upper band of the rising channel and the 1.12 range, corresponding to the peak in July 2023, into consideration.
