When looking at the forecast for the US Dollar, three important currency pairs to consider are the Euro/Dollar, Pound/Dollar and Australian Dollar/Dollar pairs. In the near term, the U.S. dollar is expected to head lower. The recent pullback in US Treasury yields is expected to be a challenge for the greenback.
The article assesses the technical outlook for the EUR/USD, GBP/USD, and AUD/USD, and focuses on price action dynamics and key levels in play.
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The U.S. dollar, as indicated by the DXY index, has seen a decline of more than 2.15% this month. Nonetheless, the recent days have shown a reduction in selling pressure, causing a modest improvement in the overall greenback. Despite the stabilization, it is expected that the downward correction started a few weeks back has not yet completed its course.
One of the factors that could contribute to weighing down the U.S. dollar is the recent movement in Treasuries as traders attempt to anticipate a “Fed pivot.” Yields have sharply decreased this month, with the decline accelerating after the subdued October U.S. CPI and PPI data. The dovish repricing of interest rate expectations was triggered by both of these reports that surprised to the downside.
Yields could continue to retreat if the economic weakness, as demonstrated in the latest jobless claims numbers, intensifies moving into 2024. This particular scenario is expected as the impact of past tightening measures filters through the real economy.
Another factor that could further drive down yields and the U.S. dollar is the substantial sell-off in oil as it has plummeted nearly 20% in the quarter. If the trend of diminishing energy costs persists, inflation will decelerate faster than expected, reducing the need for an overly restrictive stance by the U.S. central bank.
For an extensive analysis of the euro’s medium-term outlook, make sure to download our Q4 technical and fundamental forecast.
EUR/USD FORECAST – TECHNICAL ANALYSIS
EUR/USD was muted on Thursday after a moderate pullback in the previous session. Despite market indecision, the euro has a bullish bias against the U.S. dollar, with prices making higher highs and higher lows recently and trading above key moving averages.
To reaffirm the bullish perspective, the pair needs to hold above the 200 and 100-day SMA near 1.0765. Successfully defending this support zone could pave the way for the exchange rate to break above the psychological 1.0900 level and advance towards Fibonacci resistance at 1.0960, followed by 1.1075.
In the case that sellers regain strength and push EUR/USD below 1.0765, the short-term bias might change to a bearish outlook for the common currency. This potential development might lead to a downward move towards 1.0650, with continued weakness heightening the risk of retesting trendline support at 1.0570.
GBP/USD FORECAST – TECHNICAL ANALYSIS
Thursday saw GBP/USD maintaining a subdued stance, struggling to gather positive momentum, with slight consolidation below the 200-day simple moving average. In the event of escalating losses, the primary support rests at 1.2320.
Maintaining this crucial floor is essential to revive hopes of a sustained uptrend; any failure to do so might lead to a descent towards the 1.2200 threshold.
Should bulls reclaim control, the initial resistance is expected at 1.2450/1.2460. Upside clearance of this barrier could invite fresh buying interest, laying the groundwork for a potential rally towards the 100-day simple moving average. On further strength, there is potential for a move towards 1.2590, representing the 50% Fibonacci retracement of the July/October decline.
Sporting a subdued performance on Thursday, GBP/USD struggled to gather positive momentum and displayed slight consolidation below the 200-day simple moving average.escalating losses, the primary support rests at 1.2320. Preserving this crucial floor is essential to revive hopes of a sustained uptrend; any failure to do so might lead to a descent towards the 1.2200 threshold.
Should bulls reclaim control, the initial resistance is expected at 1.2450/1.2460. Upside clearance of this barrier could invite fresh buying interest, laying the groundwork for a potential rally towards the 100-day simple moving average. On further strength, we could see a move towards 1.2590, which represents the 50% Fibonacci retracement of the July/October decline. If losses escalate, primary support is found at 1.2320, and maintaining this crucial floor is essential to revive hopes of a sustained uptrend; any failure to do so may lead to a descent towards the 1.2200 threshold.
AUD/USD FORECAST – TECHNICAL ANALYSIS
After robust gains earlier in the week, AUD/USD fell off on Thursday, slipping beneath the 100-day simple moving average after being rejected at the 0.6500 handle. If the retracement continues, support rests at 0.6460 and 0.6395 thereafter. On further weakness, a drop towards 0.6350 is plausible.
On the other hand, if the pair resumes its advance, technical resistance is located around the 0.6500 mark. Overcoming this hurdle might present a challenge for the bullish camp; yet, a clean and clear breakout could catalyze a rally towards the 200-day simple moving average, which is a tad below the 0.6600 level.
