US Dollar: Downtrend Likely to Deepen Further Amid Pivotal Week – How to Trade It
2024.07.08 08:03
- Weak U.S. data from last week led to a drop in the US dollar.
- At the same time, the Fed’s more moderate messaging increased expectations of a September rate cut.
- The dollar index now faces critical support level, with upcoming CPI and PPI data and Fed Chairman Powell’s speeches this week holding the key.
- Unlock AI-powered Stock Picks for Under $8/Month: Summer Sale Starts Now!
On the last working day of last week, the US came in at 4.1%, the highest in 2.5 years, prompting fear among market participants that the US economy could be cooling faster than previously expected.
At the same time, came out with a 206K increase, which is above expectations. However, at this point, the data from the past two months has been revised downward. This development contributed to the signs of weakening in the labor force.
On the other hand, the Fed started to give more moderate messages regarding monetary policy, which increased the expectations that the bank may cut interest rates in September. Market participants now see a 76% probability from a previous 64% before the update.
As a result from these movements, the turned its oscillation down in the band movement it has maintained since April against 6 major currencies.
As we start a pivotal week for the greenback, let’s take a look at the main factors influencing its price movement, as well as the most critical technical levels to pay attention to.
DXY: Fundamental Factors for This Week
Fed Chairman Jerome Powell’s speeches during the week will certainly be key to the dollar’s next direction. On top of that, on Thursday and on Friday have become much more important to the greenback’s direction after last week’s weak economic data.
If the CPI comes out lower than expected, the market would likely further boost expectations of a September rate cut, increasing the pressure on the . Otherwise, a strong reading combined with the recent weakness of employment may create a new uptrend in the index. 
DXY – Technical View
Technically, DXY has fallen to a critical support level in the last one-week downward trend. As can be seen on the daily chart, dollar index, which bounced back at 106, fell to 104.8 according to the last short-term rise and started the week clinging to Fib 0.618 support.
This price zone is a solid support with its 3-month exponential moving average (EMA) value. If the DXY maintains this support throughout the week, it may stand out as the point where a new recovery will start, according to Powell’s views and inflation data.
In this case, 105.3 is seen as the first resistance point, while the index needs to make ground in the 106 band to regain the 2024 uptrend.
However, if this week’s statements remain moderate and the downward trend in inflation continues, DXY may retreat to the 104 limit. Below this level, the downward trend may continue until the 102.8–103.5 range.
This trend can be interpreted as an effect that increases risk appetite. Thus, the upward trend in equity markets may continue, and crypto markets may also be supported after the sharp sales in recent weeks. As a result, we will follow the key level for DXY of 104.8 this week.
EUR/USD Unfazed By Elections in France
moved with low momentum after the elections in France, which indicates that the surprising turnaround in the French election could be weighing for traders. Nevertheless, the current outlook suggests that the impact of the situation in France on the euro exchange rate will remain limited.
Against this backdrop, the EUR/USD, which fell after the ECB’s rate cut last month, found support in the 1.06 region in mid-June and then started to rise, indicating that the pair moved more focused on US data. 
Considering the oscillation of the euro exchange rate since April, the exchange rate remained above 1.081 (Fib 0.618) this week after returning from the ideal correction level, indicating that the euro continued to be supported.
Currently, the 1.0854 level (Fib 0.786) stands as EUR/USD’s most critical resistance this week. If a clear daily candle can form above this level, we can see that the pair can break the downward trend and move up to 1.096 in the short term.
In the bearish scenario, EUR/USD may have difficulty breaking the 1.085 resistance if US data comes in the direction of dollar strength this week. This may cause the pair to retreat to the 1.07 region in the current swing.
However, the ECB’s interest rate decision will be followed next week. Although the bank is expected to keep the interest rate unchanged this month, signals that it may continue to cut interest rates after the meeting may be priced as a development that triggers a downward trend in EUR/USD.
As a result, the determining point of the short-term direction for EUR/USD seems to be 1.0855.
Upward Trend in Gold
has extended its gains last week, breaking the lower peak outlook that has been in place since May. While pausing its upward trend in May, it started to move horizontally between 2,290 and 2,365. Last week, gold, which found support again from the decline in demand for the dollar, broke this horizontal outlook upwards and increased its trend.
According to the short-term trend of the last two months, gold needs to close daily above $ 2,390 to continue its trend this week. If this transition can be successfully realized, the resistance line in the range of $2,400–2,450 will start to be tested.
Depending on the downward trend in the dollar index, if gold exceeds this zone, we can see that it can create a new record level in the range of $ 2,490-2,550.
So, while the resistance of $ 2,390 is important this week, the last peak of $ 2,450 may enter the radar again. If there is pricing for the strengthening of the dollar, there may be an easing up to $ 2,330 in the lower region in the short term.
***
This summer, get exclusive discounts on our subscriptions, including annual plans for less than $8 a month!
Tired of watching the big players rake in profits while you’re left on the sidelines?
InvestingPro’s revolutionary AI tool, ProPicks, puts the power of Wall Street’s secret weapon – AI-powered stock selection – at YOUR fingertips!
Don’t miss this limited-time offer.
Subscribe to InvestingPro today and take your investing game to the next level!
Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize 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 with the investor.
