US Dollar Falls on Fed's Loose Pivot, EUR/USD, USD/JPY, GBP/USD Constellations – DailyFX

US DOLLAR FORECAST – EUR/USD, USD/JPY, GBP/USD

  • The US dollar is weakening across the board as the Federal Reserve announces numerous interest rate cuts next year
  • The FOMC’s dovish policy outlook is driving Treasury yields lower
  • This article focuses on the technical outlook for EUR/USD, USD/JPY and GBP/USD in the wake of the Fed’s interim reversal

Most read: Fed stays put, plans three rate cuts in 2024; Gold prices rise while yields fall

As measured by the DXY index, the US dollar plunged nearly 0.9% on Wednesday, dragged down by the massive collapse in US Treasury yields after the US Federal Reserve’s forecast surprised on the dovish side and investors who Expecting a different outcome, the guard was put off and on the wrong side of the trade.

For comparison: The US Federal Reserve concluded its last meeting of the year today. Although policymakers kept borrowing costs unchanged at their highest levels in several decades, they gave early signs of an impending policy shift, adopting a more benign characterization of inflation and admitting that talks of cutting interest rates have begun.

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The Fed’s summary of economic forecasts reinforced the view that policy change is on the horizon. The dot plot shows 75 basis points of easing next year, far more than expected in September. While rate cut bets on Wall Street have been extreme, the Fed’s forecasts are slowly getting closer to the market outlook – this is likely to be bearish for the greenback and yields into 2024.

As the broader US dollar tumbled, EUR/USD rose towards the 1.0900 level, while GBP/USD broke a key ceiling near 1.2600. Meanwhile, USD/JPY plunged and quickly fell towards its 200-day simple moving average – the last line of defense against a larger decline.

This article focuses on the technical outlook for key US dollar pairs such as EUR/USD, USD/JPY and GBP/USD and examines key price levels following Wednesday’s outsized moves in the FX space.

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EUR/USD TECHNICAL ANALYSIS

EUR/USD surged on Wednesday, clearing technical resistance near 1.0830, the 200-day simple moving average. If this uptrend continues in the coming days, bullish momentum could accelerate and set the stage for a rally towards 1.0960, the 61.8% Fib retracement of the July/October decline. If there is further strength, attention would turn to 1.1015, last month’s high.

On the other hand, if the bullish momentum fades and prices continue their downward trend, the first support to monitor is at 1.0830, however, if it falls below this level the pair could face further losses, with the next area of ​​interest being at 1.0765. Continued weakness could bring focus to trendline support currently crossing the 1.0640 area.

EUR/USD TECHNICAL CHART

EUR/USD chart created with TradingView

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USD/JPY TECHNICAL ANALYSIS

USD/JPY enjoyed an uptrend earlier this week, but that rise came to an abrupt end on Wednesday when the Fed triggered a massive sell-off in the US dollar. This drove the pair sharply lower and pushed the exchange rate towards its 200-day SMA, the next key floor to watch. The Bulls must defend this ground steadfastly; Otherwise, there could be a decline towards 141.70 and then 140.70.

Conversely, if USD/JPY continues its rally, technical resistance will emerge at 144.50. Buyers might find it difficult to break through this barrier, but if they manage to push prices above this ceiling, we could see a rally towards the 146.00 level. With further strength all eyes will be on 147.20.

USD/JPY TECHNICAL CHART

USD/JPY chart created with TradingView

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Daily -8th% 0% -4%
Weekly -11% -5% -8th%

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GBP/USD TECHNICAL ANALYSIS

GBP/USD climbed on Wednesday, clearing resistance at 1.2590 after bouncing off trendline support near 1.2500, with the rise boosted by the broader decline in the US dollar. If the pair manages to hold recent gains and gradually consolidate higher, we could soon see a retest of the 1.2720 level, the 61.8% Fib of the July/October retracement. Further up, all eyes will be on 1.2800.

On the other hand, if sellers return and trigger a bearish trend reversal, first support will appear at 1.2590, followed by 1.2500, near the 200-day simple moving average. Looking down, the focus turns to 1.2455. It is likely that Cable will stabilize on a decline in this region before making a possible comeback, but in the event of a breakdown, a decline to 1.2340 becomes a plausible scenario.

GBP/USD TECHNICAL CHART

GBP/USD chart created with TradingView

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