The US dollar is trading close to its three-week high on Tuesday after investors cut their bets on aggressively lowering US interest rates ahead of Federal Reserve Governor Jerome Powell speech, in which he will present to the Congress the position of the Central Bank on the country’s economy.
The comments of the Fed Chairman Jerome Powell over the next two days in the Congress will be closely monitored by market participants who will decide whether to reduce or increase their bets on interest rate cuts that would help the US dollar to continue its uptrend.
The US Dollar Index, which measures the strength of the greenback against a basket of six major currencies, changed slightly to 97.366 points on Tuesday, close to the three-week high of 97.443 points reached last Friday. The US Dollar Index appears to have met quite a strong hurdle near 97.50 points so far this week amid swelling cautiousness ahead of Jerome Powell’s testimony before the Senate tomorrow and the release of the FOMC minutes.
The upside momentum in the greenback comes in response to diminishing expectations of an aggressive move by the Federal Reserve at this month’s meeting (50 bps rate cut), which have re-surfaced after the solid print from US Payrolls in June.
At the moment, the US Dollar Index is standing at 97.37 and faces the next up barrier at 97.80 (monthly high June 3) seconded by 97.87 (61.8% Fibo of the 2017-2018 drop) and finally 98.37 (2019 high May 23). On the downside, a breakdown of 97.31 (55-day SMA) would aim for 97.09 (100-day SMA) and then 96.46 (low June 7).
The EUR/USD pair is meandering the area of 3-week lows in the proximity of the 1.1200 handle on Tuesday, always under pressure as market participants continue to adjust to the renewed idea of a potential smaller rate cut by the Federal Reserve later in this month.
If sellers manage to break below this key level, the mid-June lows in the 1.1180 area could return to the radar ahead of March low at 1.1176. As long as the critical 200-day SMA at 1.1328 caps the upside, the bearish view on EUR/USD remains intact.
At the moment, the EUR/USD pair is receding 0.03% at 1.1210 and faces immediate contention at 1.1205 (monthly low July 9) followed by 1.1181 (low June 18) and finally 1.1106 (2019 low May 23). On the flip side, a break above 1.1256 (100-day SMA) would target 1.1328 (200-day SMA) en route to 1.1412 (high June 25).
The USD/JPY pair built on its recent bounce from multi-month lows and continued gaining traction for the third consecutive session on Tuesday, climbing to six-week tops near the 109.00 mark.
Given that the pair has already found acceptance above the 108.65-70 supply zone, bullish oscillators on hourly/daily charts support prospects for an eventual breakthrough the mentioned barrier and extension of the near-term appreciating move.
Subsequent up-move is likely to confront some resistance near the 109.25-30 region and is followed by 50% Fibo. level – around the 109.55-60 region, above which the pair seems all set to aim towards reclaiming the key 110.00 psychological mark.
Alternatively, any rejection slide from the current hurdle now seems to find immediate support near the 108.70-65 resistance breakpoint, which if broken might prompt some technical selling and accelerate the slide back towards the 108.00 round figure mark.
The British pound fell to a six-month low against the dollar due to speculation that the Bank of England (BoE) will soon join other major central banks and will ease its monetary policy in response to growing concerns about the world economy and Britain’s exit by the European Union.
The GBP/USD was exchanging at 1.2515, approaching the alarming level of 1.2481, which is the lowest value since the beginning of the year.
The data on the UK Gross Domestic Product and industrial output are expected on Wednesday, and the Central Bank of England will publish its report on financial stability on Thursday that could help traders assess whether BoE will take a more aggressive monetary policy to support of the economy.
Last week, BoE governor Mark Carney said trade war and Hard Brexit are rising risks for the British economy, which may need more help to cope with the downturn. This has prompted investors to increase their bets on reducing the interest rate.