US Dollar Forecast: EUR/USD, GBP/USD and USD/JPY Price Action Setups – DailyFX

USD Weekly Forecast: Neutral

• Technical barriers will limit USD upside, but USD is likely to settle within a range next week
• EUR/USD strong despite worsening European outlook
• GBP/USD dissatisfied with long-term resistance – lower odds of interest rate cut supporting GBP?
• USD/JPY moves towards intervention levels again
• In this article’s analysis, chart pattern and the key support and resistance level. For more information, please see our comprehensive information. educational library

Technical barriers limit USD gains next week

The neutral outlook for the USD next week comes from long-term charts that reveal key support levels for the USD, despite the possibility of continued disinflation in January.

With memories of January’s big NFP report still fresh in the minds of traders and investors, the US economy is essentially moving at an impressive pace, and even if inflation declines, it will continue to push the dollar higher through this week. He added that lowering it could be difficult. There are concerns that cutting interest rates too soon could further stimulate the economy and lead to higher prices in the not-too-distant future.

Traders have already minimized the possibility of a rate hike, with the Fed cutting rates in March and early in the second quarter, but the Fed has provided ample evidence that rates will be lowered this year, leaving the possibility of another big surprise. Without this, the dollar’s upside potential is likely to be limited. With domestic data received. Retail sales in January are expected to rebound as expected after the holiday season, which could help keep the dollar in check. Sentiment from the University of Michigan Consumer Sentiment Survey shows strong signs of improvement. If this report continues to be rosy, the dollar could see a late rally over the weekend, but we expect the positive and negative impacts to be roughly balanced this week.

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EUR/USD strong despite worsening European outlook

Looking at the weekly chart of EUR/USD, the price movement tested the 1.0724 level but failed to sustain near the previous support level and subsequently declined. The pair may continue to test this level next week, but bearish fatigue could limit any extended decline.

The deterioration in Europe’s economic outlook and data appears to have already been priced in. The next decline in EUR/USD is likely to come from an increased urgency by ECB officials to cut interest rates, which has been lacking so far. On the contrary, ECB members have done their best to downplay the idea that the ECB will be forced to cut interest rates ahead of its peers (the Fed and the Bank of England). ZEW sentiment data on Tuesday is unlikely to change significantly, and the impact on the euro itself is likely to be limited.

EUR/USD weekly chart

Source: TradingView, Author richard snow

The daily chart is looking at the market more closely and is currently testing resistance in a channel that could be the fifth straight day of gains. A fairly tight resistance zone around 1.0830/1 awaits this pair if it is expected to break out of the ascending channel.

Notable support and resistance for the pair suggests a week where EUR/USD may react to incoming data during the day, but may not be able to follow up with additional momentum.

EUR/USD daily chart

Source: TradingView, Author richard snow

GBP/USD dissatisfied with long-term resistance – lower odds of interest rate cut supporting Pound?

With the Bank of England (BoE) expecting inflation to return to target much sooner than originally expected in November, it’s no wonder markets are bracing for an impending rate cut. This never happened. Rather, lingering questions about future developments on inflation within the policy-making committee have kept markets speculating. Of the three committee members who previously voted in favor of an additional 25 basis points (bps) rate hike in December, two remained at the January meeting. Notably, one member voted to cut rates, while the remaining six were satisfied with keeping rates unchanged.

The BoE’s forecast also warned that inflation should reach target in the first half of this year, but that persistent price pressures are likely to flare up again, meaning inflation will remain above the market’s 2% level for an extended period. . Members still lack confidence in the inflation figures and want to see further progress before cutting the bank rate.

On the weekly chart, GBP/USD reveals frustration at not being able to break out of the significant 61.8% Fibonacci retracement at 1.2756, which has fallen significantly since 2021. This level has been tested many times, but for now the pair appears to be retreating.

GBP/USD weekly chart

Source: TradingView, Author richard snow

GBP/USD is on the verge of a breakout and cannot continue rising above its 200-day simple moving average (SMA) for long. However, resistance in the stern channel suggests that cable could attempt further declines next week, apart from the possibility of further consolidation. Neutral bias favors consolidation and this looks like the base case for next week, with high-impact UK statistics returning in a week, including all employment, inflation and growth data .

GBP/USD daily chart

Source: TradingView, Author richard snow

In this article, we will discuss three of the most liquid Forex pairs, each of which has its own nuances that all traders should be aware of. Find out how to trade each of the major pairs below.

USD/JPY drifts towards intervention levels again

USD/JPY is rising towards the infamous 150 index after the Bank of Japan Governor and Deputy Governor confirmed that they are in no hurry to raise interest rates. This week, Deputy Governor Shinichi Uchida and Governor Kazuo Ueda reaffirmed the board’s cautious approach regarding the inevitable shift away from negative interest rate policy.

Uchida is known for giving hints about important developments, so his comments are closely followed. USD/JPY continues to rise as the market distances itself from the notion of imminent interest rate changes by the Bank of Japan. The 150 marker is near-term resistance and 146.50 appears as support. The Bank of Japan’s recent commentary and apparent lack of concern about the weaker yen opens the door to a new challenge for the 150.

USD/JPY daily chart

Source: TradingView, Author richard snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnow