Home ForexForecasts US Dollar Faces Key Test at Two-Month Lows: What’s Next for the Dollar?

US Dollar Faces Key Test at Two-Month Lows: What’s Next for the Dollar?

by SuperiorInvest
  • The US dollar has continued its decline, hitting a two-month low of 103.6, driven by expectations of a Fed pause on rate hikes and possible future cuts.
  • DXY faces technical challenges as it approaches the 102.5 – 103 support zone, with short-term moving averages indicating a likely continuation of the decline.
  • Meanwhile, the euro has strengthened against the dollar on expectations of earlier rate cuts by the Federal Reserve, reaching a critical resistance point.
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After experiencing their steepest weekly decline since July last week, they began the new week by maintaining their downward trajectory.

Today, DXY fell to its lowest level in the last 2 months, hitting a low of 103.6, while generating bearish signals based on recent economic developments.

Following weaker-than-expected data last week, investor sentiment has solidified around the belief that the Federal Reserve is done raising rates.

Consequently, the market has focused its attention on when the Federal Reserve could begin cutting interest rates.

Despite recent dovish comments from Federal Reserve officials supporting a weaker dollar, market prices do not fully incorporate officials’ statements indicating a possible revival of tightening policies when necessary.

As the view that the Fed will transition to an interest rate pivot phase gains strength, there are still some suggestions that the Fed could start cutting rates sooner, which would impact risk appetite.

At the same time, the results of the last meeting of the Federal Reserve, in which interest rates were left unchanged for the second time, are expected to be published tomorrow.

Given last week’s trends, the impact of the meeting minutes on the US dollar is expected to be limited.

The DXY, which demonstrated stability in October despite escalating geopolitical issues, has now entered a downtrend due to rising risk appetite as regional tensions expand and news flow slows.

Technically, the dollar remained horizontal for a month in the September-October period and then entered a corrective trend.

The index, which tried to hold the 105 support for a while, lost its support at 104.2 band after last week’s sharp drop and is moving towards the main support zone at 102.5 band – 103, maintaining its negative outlook this week.

This region is likely to be tested this week. A possible breakout could push the index to 101, support in the first half of the year.

On the other hand, the short-term moving averages continue to indicate that the decline may continue, as they are in the inverse crossover phase.

On a weekly basis, the Stochastic RSI suggests that there is more room for a decline. In the short term, the indicator has begun to reflect oversold conditions. It has become important to hold the intermediate support at 103.4 for a possible reversal.

However, there is currently little data on dollar demand to show that it is increasing. The decision to cut oil supply from the OPEC meeting due to this week’s setback may cause a short-term reaction in dollar purchases.

In the current situation, it seems more likely that the index will continue its correction phase.

Weak demand for dollars causes increased demand for gold and major currencies look riskier.

In this process it rose to the 1.09 band. , which retreated sharply due to the weakening dollar, fell to the 147 band as sellers began the week. , which turned its direction last week, started the week horizontally.

EUR/USD: Will the uptrend continue?

The euro rose against the US dollar last week amid growing expectations that the Federal Reserve would begin cutting interest rates sooner. Furthermore, data released on Friday in the eurozone fell below 3%, which was another factor that supported the pair.

EUR/USD price chart

EUR/USD, which made its highest jump on the day the US data was released, thus reached a critical resistance point compared to the latest downtrend this week, with the price action surpassing the ascending channel.

This week, the 0.618 Fib retracement value at 1.093 becomes important, while the pair is likely to reach its next resistance at 1.1 (0.786 Fib) if this resistance is broken. Otherwise, we can see that the euro could soften towards $1,083.

USD/JPY retreats, targets lower end of ascending channel

USD/JPY, which has been moving in an ascending channel since the beginning of the year, began to come under pressure at 151, last year’s high, throughout November. As a result of this pressure, USD/JPY retreated sharply as US data caused the US dollar to weaken.

USD/JPY price chart

Although the appreciation of the Japanese yen against the dollar has accelerated in recent days, the movement is seen to continue within the ascending channel.

Consequently, the important price level for a possible trend reversal can be followed as 146. A weekly close below this value could be a trigger for a trend reversal in USD/JPY.

Additionally, the 148.3 level tested today entered the agenda as short-term intermediate support. While daily closes above this value indicate that the pair remains resilient, potential reaction buying may see the pair rise towards the 150 level.

Gold could continue to rise

Last week, while the 3-month EMA value found support at $1,930, the recovery trend continued up to $1,980, which served as resistance throughout the year.

Gold price chart

If the ounce of gold, which had a difficult time breaking above this price level earlier in the week, can close daily above this resistance price, we can see that the next price target could be the $2,020 level.

Currently, technical indicators continue to support gold’s bullish momentum. However, for the move to continue, it is very critical to break through the $1,980 zone with a clear daily close.

On the other hand, if this resistance cannot be overcome, increased potential profit selling may lead the gold price to retreat once again to the $1,930 – $1,950 range.


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Disclaimer: This article is written for informational purposes only; It does not constitute a solicitation, offer, advice or recommendation to invest as such and is not intended to encourage the purchase of assets in any way. I would like to remind you that any type of asset is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains in the hands of the investor.

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