FOREX Traders See USD Declining After Meeting Resistance

Forex Traders See USD Declining After Meeting Resistance

The foreign exchange (forex) pair has largely been subdued by the dollar’s mood swings, but technical analysis helped spot the last reversal. The US dollar index (DXY) should trade well within a 103.50-104.50 range today, ING Economics Chris Turner said in a note.

Meanwhile, the USD/JPY pair was looking to the downside early on Tuesday. The intraday decline follows a string of daily losses after the dollar peaked at a six-month high of ¥141 on May 30.

Interestingly, this price level turned into resistance within a long-term parallel channel starting from January 16. Now that the technical part is taken into consideration, what’s cracking the pair in the real economy?

Signs of a weakening US economy have started to emerge. The services sector marked a significant decline last month, despite a super strong jobs report that pumped stocks on Friday. Further, Japan’s GDP data comes out Thursday.

In that context, forex deals broadly are in favour of dollar peers, while the greenback is retreating. The EUR/USD is teetering just above the flatline for the day, after peaking at a session high of $1.0732. The GBP/USD is aiming to snap a two-day losing streak, trading at $1.2430.

Surprise RBA hike gives the dollar food for thought

The Reserve Bank of Australia surprised with a 25-basis points hike, citing upside risks to inflation and the trade-off that delaying rate hikes could be costly.

This may raise expectations for a similar move from the Bank of Canada tomorrow and that the Fed will sound hawkish next week – which may well frustrate dollar bears. Keep an eye out for Poland’s rate meeting

The dollar opens Europe a little weaker and is about 0.5% off yesterday’s highs. The US data calendar is now pretty quiet for the rest of this week and the market may well hold positions into next week’s May CPI data and the June 14th FOMC meeting.

Delivering some food for thought ahead of that FOMC meeting was last night’s surprise hike by the Reserve Bank of Australia (RBA).

Having paused its aggressive hiking cycle in April, the RBA hiked another 25bp, citing increased upside inflation risks and – like many central banks around the world – frustrated that core inflation was not falling more quickly.

The RBA’s move to restart its tightening cycle may throw extra focus on tomorrow’s Bank of Canada (BoC) meeting after paused rate hikes at its March and April meetings.

A 25bp BoC rate hike tomorrow (now priced with a 43% probability) would probably cause ripples across core bond markets around the world and could keep the dollar bid on the view that the Fed might be closer to hiking than first thought.

So while the dollar is slightly offered today, analysts think investors may be reluctant to rebuild dollar shorts until next week’s double event risk of CPI/FOMC has been overcome. #Forex Traders See USD Declining After Meeting Resistance

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