The US dollar weakened on Thursday, trading near a 1-week low against the Japanese yen, as the falling yield on government bonds raised expectations that the US Federal Reserve would cut interest rates this month for the first time in a decade.
The US government bonds follow the global rally of government securities, sending their yields to the lowest levels in more than two and a half years, and European government bonds have reached a record low after announcements for cuts in interest rates to support the economy. The US yields dropped further and yields of the US 10-year note fell to the lowest level in more than two years near the 1.94% mark.
On another bout of disapproval towards the Fed’s policy, President Trump advocated for a looser monetary policy yesterday, although the buck managed to keep the composure and closed almost unchanged for the day.
Falling expectations for fast resolution of the US-China trade war also pressed the US dollar.
The US Dollar Index is trading without a clear direction although it manages well to keep the topside in the 96.70 region. The index stays under some downside pressure in the second half of the week after market chatter regarding the likelihood of rate cuts by the Federal Reserve in the near term have resurged in the wake of yesterday’s poor US docket.
At the moment, the US Dollar Index is losing 0.02% at 96.74 and a breach of 96.63 (200-day SMA) would aim for 95.82 (low February 28) and then 95.74 (low March 20). On the other hand, the next up barrier lines up at 96.88 (monthly high July 2) seconded by 97.08 (100-day SMA) and finally 97.77 (high June 18).
Global forex trading is likely to fall on Thursday as US financial markets are closed due to the Independence Day.
The pair EUR/USD is trading below 1.1300 amid quiet trading ahead of the US holiday. Both US and European bond yields are plunging. The single European currency weakened after IMF Executive Director Christine Lagarde, considered a dove in politics, was nominated as the next president of the European Central Bank.
According to the analysts, she could take the easy monetary policy and chances for new quantitative easing programs and interest rate cuts are rising.
Yesterday, the EUR/USD currency pair traded sideways between the weekly S3 at 1.1275 and the 55-hour moving average, currently located at 1.1289. During Thursday’s morning, the pair continued to trade within the given cluster.
On the one hand, the exchange rate could surpass the given support level and go downside. In this case, the rate could surpass the psychological level at the 1.1260 mark.
On the other hand, the pair could continue to trade sideways within the cluster formed by the given support level, as well the resistance formed by the 100-hour SMA, the weekly S2 and the monthly PP at 1.1310.
The USD/JPY pair is moving sideways in a very narrow band on Thursday amid thin trading conditions. As of writing, the pair, which has been in a 13 pip range since the start of the day, was last seen trading at 107.80, virtually unchanged on a daily basis.
The US dollar dropped 3.5% against the yen over the past three months, against the backdrop of rising expectations that the Fed will cut interest rates for the July 30 meeting.
During Wednesday, the USD/JPY currency pair tried to surpass the resistance level formed the monthly PP at 107.84. During today’s morning, the pair was testing the given resistance.
Note, that the exchange rate is supported by the 200-hour SMA, currently located at 107.50. Thus, bulls could prevail in the market in the short term. In this case, the rate would have to surpass the 55– and 100-hour SMAs, located at 107.89 and 108.01 respectively.
However, if the given resistance hold, the pair could trade sideways between it, as well the support level formed by the weekly PP at 107.63.