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Despite the better-than-expected US inflation data, US interest rate expectations have shifted in a more dovish direction over the past few sessions. Traders are currently discounting more than 155 basis points (bp) of easing for the rest of the year, compared with 130 basis points (bp) as of late last week. Against this background, the US dollar as measured by the DXY index has stopped its recovery and is rising towards the 102.00 level.
The chart below shows the implied yield for all 2024 federal funds futures contracts.
Source: TradingView
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The Fed is poised to reduce borrowing costs in 2024 in line with its guidance, but it is unlikely that the deep cuts priced in by the market will materialize. With the U.S. economy remaining remarkably strong and disinflationary growth stagnant, policymakers have become very accommodative, fearing further easing of financial conditions and complicating the path to price stability. They will likely be reluctant to adopt such a stance.
Given recent developments, it would be surprising to see Fed officials take an aggressive stance in the coming days and weeks to counter the overly dovish outlook projected by Wall Street. won't hit. This strategy could help stabilize U.S. Treasury yields ahead of a potential turnaround, a scenario that could be bullish for the U.S. dollar overall in the short term.
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EUR/USD technical analysis
EUR/USD had a subdued performance on Friday, but remained above the technical support at 1.0930. If this lower bound holds firm, the pair could resume its upward trajectory in the coming trading sessions, with a move towards 1.1020 within reach. Continued strength will likely redirect him to 1.1075/1.1095, followed by 1.1140.
Conversely, in a scenario where the bearish momentum accelerates and the exchange rate drops below 1.0930, a retracement to 1.0875 becomes realistic. This particular area is significant because it coincides with both the 50-day simple moving average and the lower bound of the short-term uptrend channel. Further market weakness could lead to a retest of the 200-day SMA.
EUR/USD technical chart
EUR/USD chart created using TradingView
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GBP/USD technical analysis
GBP/USD was mostly flat on Friday, trading just below the overhead resistance at 1.2765. Sellers must adhere to this cap at all costs. Failure to do so could result in a rally towards December highs above the 1.2800 handle. Further strength may give the bulls the courage to launch an attack on the psychological level of 1.3000.
Conversely, if bearish pressure resurfaces and the cable pivots below, the first support will appear at 1.2675, which corresponds to the lower bound of the medium-term ascending channel. Prices are likely to bottom on a pullback in this area, but a breakdown could pave the way for a fall towards 1.2600. Continued losses after this point could trigger a 200-day SMA.
GBP/USD technical chart
GBP/USD chart created using TradingView
How retail positioning USD/JPYWhat is the short-term direction? Our emotions guide contains valuable insights on this topic. Download now!
|
change |
long |
shorts |
OI |
| every day | 1% | -7% | -Five% |
| weekly | 6% | 1% | 3% |
Technical analysis of USD/JPY
USD/JPY rebounded earlier this week, but lost its upward momentum as the price struggled to break above the 146.00 resistance. A clear and decisive push above the 146.00 mark is needed to reignite the upward momentum. This level is consistent with the 50-day simple moving average. Such a development could pave the way for a rally towards the 147.00 handle.
Conversely, if sellers regain firm control of the market, the first support will approach 144.65. The bull must resolutely defend this floor. Failure to do so could result in a pullback toward the 200-day simple moving average near 143.60. A subsequent decline could draw attention to the December low below the 141.00 threshold.
