US Dollar Setups (EUR/USD, AUD/USD, USD/JPY)
- The US dollar appears to benefit from geopolitical uncertainty
- EUR/USD vulnerability exposed despite an uptick in sentiment data
- AUD/USD slide continues after uninspiring Chinese GDP data
- USD/JPY flirts with dangerous level ahead of Japanese CPI
- Navigate the markets with confidence – get your US Dollar Q2 trading forecast below!
USD Appears to Benefit from Geopolitical Uncertainty
In what is a rather quiet week for the dollar - as far as scheduled risk (data) is concerned – a thorough analysis of USD pairs can help establish a basis for future price action. The dollar performed extremely well in Q1, particularly against major currencies, and looks set to continue in a similar fashion at the start of the second quarter.
Better-than-expected US CPI data provided the catalyst for the recent USD advance, that now appears to be benefitting from an added safe haven boost, keeping the dollar at elevated levels. Due to the sheer robustness of US data (inflation, jobs and growth), markets have had to revise estimates of Fed rate cuts in 2024 and now envision around two 25 basis point (bps) cuts this year.
EUR/USD Vulnerability Exposed Despite a Uptick in Sentiment Data
The EU and Germany have revealed improving sentiment and confidence data in recent months, suggesting that analysts expect that we have already seen the trough in Europe. Nevertheless, hard data like inflation, employment and growth are on the decline – weighing on ECB policymakers to loosen financial conditions. The ECB’s governing council meets again in June when they will be armed with the latest economic projections when deciding whether it will be appropriate to cut interest rates for the first time since the hiking cycle got under way in 2022.
With a June cut largely expected by the market and numerous ECB officials, the euro is likely to remain weak against the high-flying dollar - weighing on EUR/USD. The pair holds just below the 28.6% Fibonacci retracement of the major 2023 decline which may be tested in the short-term considering the current oversold conditions. The recent decline represents the fastest 5-day drop since February 2023 despite the pair opting for consolidation yesterday and seeing a similar start to today's price action.
The longer-term direction appears to favour further weakness as the US-EU interest rate differential is expected to widen. The full retracement of the major 2023 decline is the next major level of interest to the downside at 1.0450 but given the rate of decline in EUR/USD, a shorter-term period of consolidation or even a minor retracement may materialise.
EUR/USD Daily Chart
