US Dollar Index outlook

US Dollar Index outlook: Dollar remains at the back foot on calmer tones from Fed

(Slobodan Drvenica – Windsor Brokers)

US Dollar Index

The dollar index holds in red for the third consecutive day and extends pullback from new 20-year high, to hit one-week low in European trading on Tuesday.

The sentiment softened after US policymakers cooled down the speculation that the US central bank may opt for a massive 1% hike in the policy meeting later this month, after the latest inflation report showed that consumer prices continue to rise despite several rate hikes in past few months.

FOMC members said that the central bank will likely stick to its decision for 0.75% hike that prompted traders to collect profits, pushing the price lower.

The latest comments that the European Central Bank will discuss whether to raise interest rates by 0.25% or 0.5% at their meeting on Thursday, to fight soaring inflation, lifted the euro and added pressure on dollar.

Daily chart studies show strong loss of bullish momentum, as pullback closed below 10DMA (107.43) on Monday and extended through pivotal Fibo support at 106.94 (38.2% of 103.40/109.12 upleg), generating bearish signals.

Bears pressure next key Fibo level at 106.26 (50% retracement) break of which would further weaken near-term structure and risk deeper drop.

However, worsening global economic situation in light of expected deterioration of gas supplies for Europe and signs of further slowdown in economic activity, remain supportive for safe-haven greenback that may limit dips.

US housing data are in focus today and expected to provide fresh signals.

Res: 106.94; 107.44; 107.77; 108.40.
Sup: 106.26; 105.98; 105.59; 105.35.

EURUSD Forecast: Euro needs to clear 1.0270 to extend rally

(Eren Sengezer – FXStreet)

– EUR/USD has surged beyond 1.0200 on latest ECB headlines.

– The dollar continues to weaken against its major rivals.

– Eyes on US Housing Starts and Building Permits rate.

EUR/USD has gathered bullish momentum in the early European session on Tuesday and advanced to its highest level in nearly two weeks at around 1.0250. The pair faces strong resistance at 1.0270 and it could continue to push higher if buyers manage to flip that level into support.

Citing sources familiar with the matter, Reuters reported earlier in the day that the European Central Bank (ECB) policymakers were set to discuss whether to hike the policy rate by 50 basis points (bps) in July. This headline provided a boost to the shared currency. Reflecting the broad euro strength, EUR/GBP jumped above 0.8500 and was last seen rising 0.5% on a daily basis.

On the other hand, disappointing macroeconomic data releases from the US continue to weigh on the probability of a 100 bps Fed rate hike in July and hurt the greenback. On Monday, the NAHB’s Housing Index slumped to 55 in July from 67 in June, citing high inflation and rising mortgage rates as primary factors behind the deteriorating sentiment in the housing market. Fed Governor Christopher Waller said on Thursday that a 100 bps hike in July was conditional on stronger-than-expected housing data.

Later in the session, the US Census Bureau will release Housing Starts and Building Permits data for June. In May, Housing Starts declined by 14.4% and a similar drop in June should weigh on the dollar and help EUR/USD gain traction in the second half of the day. An unexpected recovery in Housing Starts could trigger a dollar recovery.

EURUSD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart climbed above 70, suggesting that the pair could stage a technical correction before continuing to push higher. On the upside, 1.0270 (100-period SMA, Fibonacci 61.8% retracement of the latest downtrend) forms significant resistance. In case buyers manage to flip that level into support, 1.0300 (psychological level) could be seen as the next hurdle before 1.0400 (200-period SMA).

Supports are located at 1.0220 (Fibonacci 50% retracement), 1.0200 (psychological level) and 1.0170 (Fibonacci 38.2% retracement).

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