Home ForexForecasts US Dollar: Recovery at Risk as Crucial Week Begins for Global FX Market

US Dollar: Recovery at Risk as Crucial Week Begins for Global FX Market

by SuperiorInvest
  • The US Dollar Index struggles to reach the resistance at 103.4 amid rising bond yields, weighing on major currencies and gold.
  • The ECB hints at a slower rate cut approach, which will affect the weakening trend of EUR/USD.
  • USD/JPY rises after the Bank of Japan meeting, while the pound remains strong against the dollar.
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Despite gradual recovery in the last three weeks, they faced difficulties in breaking the resistance level around 103.4. Current perspectives suggest that this resistance remains a focal point.

The rise from 3.8% to 4.18% since the beginning of the year contributes to the strength of the dollar, although a weaker development is expected for the DXY this week. Major currencies, including the UK, continue to come under pressure.

The dollar’s recovery momentum this month has been largely supported by data indicating the sustained strength of the US economy. Members’ cautious stance regarding an early cut can be seen as another factor boosting the dollar.

However, the Federal Reserve’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. However, the dollar maintains its recovery momentum amid the current uncertain environment.

EURUSD

All eyes are on this week’s European Central Bank (ECB) policy meeting, with market participants looking to anticipate the timing of potential rate cuts by the Federal Reserve. Market expectations suggest the ECB could implement five rate cuts this year, outpacing the Federal Reserve.

However, the ECB has indicated a slower and less aggressive approach to reducing borrowing costs compared to market expectations.

The weakening trend of the euro against the dollar this month has signaled a possible trend reversal. The bullish movement seen since October faced resistance at 1.106 (0.786 Fib) at the end of the year.

The pair, now returning to the upper band of the ascending channel, broke below the 1.09 support level, indicating a downward shift in the ascending channel starting this week.

From a technical point of view, this outlook could put downward pressure on EUR/USD as long as the average remains below 1.0934. Consequently, initial support in the lower range will be observed around the 1,084 level. If this support is broken, a correction towards 1.06 may become plausible.

In case of a possible recovery, close attention will be paid to the last resistance level of 1.106, especially if the day closes above 1.0934. Further bullish moves beyond this level could put the upper band of the ascending channel and the range of 1.12, corresponding to the July 2023 peak, into consideration.

USD/JPY

The Bank of Japan began its two-day session today, with lower expectations of an exit from negative interest rates, especially after the earthquake on the first day of the year.

Although it was the major currency that depreciated the most against the dollar last year, the USD/JPY pair changed its direction upwards with renewed demand for the dollar after declining to 140 in the final months of the year.

USD/JPY Daily Chart

In the current upward move since the beginning of the month, the 0.618 Fib value at 147.5 has now become support for USD/JPY after a quick move.

While the pair has maintained a flat course for the last 3 days, the 149.4 level will be monitored as the nearest resistance, with expectations of movement following the decisions at the BOJ meeting.

Beyond this level, as long as the Bank of Japan maintains its current policy, it may pave the way for new peaks and formations in the medium term, reaching levels around 154 – 158. However, a possible weakness of the dollar, depending on whether The Federal Reserve begins to cut interest rates in the second half of the year, it could be a factor that stops the upward trend.

GBP/USD

Sterling continues to show strength against the dollar, supported by the perception that the Bank of England will not implement interest rate cuts as quickly as the ECB and the Federal Reserve, despite high inflation in the United Kingdom.

has remained stable around 1.27, which contrasts with the fall of the euro and the Japanese yen against the dollar since the beginning of the year. Consequently, the exchange rate has successfully sustained the recovery trend that began in October.

GBP/USD Daily Chart

On a technical note, it is worth noting that GBP/USD has faced 0.618 Fib resistance since December, stemming from the pullback that occurred in the July-October period of last year.

While this region poses a challenge for the pair, a break with a weekly close following a possible pullback towards the 1.26 level could push a pullback towards the 1.23 level.

On the upside, a weekly close above the 1.27 range could fuel a rally in the British pound, potentially pushing the pair towards the resistance zone within the 1.288 – 1.308 range in the near term.

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Divulgation: 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 perspectives and is highly risky and therefore, any investment decision and the associated risk remains in the hands of the investor.

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