After the dollar fell to nearly 2-month lows, bearish signals strengthened!Maintain negative outlook for this week
The U.S. dollar kicked off the new week by maintaining a downward trajectory after suffering its biggest weekly decline since July last week.
On Monday (November 20), the U.S. dollar index fell to its lowest level in the past 2 months, as low as 103.36, while sending a bearish signal based on recent economic developments.
Investors’ belief that the Federal Reserve is done raising interest rates has solidified after last week’s weaker-than-expected inflation data. As a result, markets are turning their attention to when the Federal Reserve may start cutting interest rates.
While Fed officials have recently made dovish comments in support of a weaker dollar, markets have not fully priced in officials’ statements, suggesting a return to tightening may be necessary if necessary.
As the view that the Fed will transition to a rate pivot phase gains traction, there are still some signs that the Fed may start cutting rates sooner, affecting risk appetite.
At the same time, the minutes of the Federal Reserve’s last meeting are expected to be released tomorrow, and the minutes will keep interest rates unchanged for the second time.
Judging from last week’s trends, the impact of the meeting minutes on the US dollar is expected to be limited.
The U.S. dollar index was stable in October despite escalating geopolitical issues, but has now entered a downward trend due to increased regional tensions and slowing news flow, increasing risk appetite.
(USD Index Chart)
From a technical perspective, the US dollar remained sideways for a month from September to October, and then entered a correction trend.
The index tried to hold the 105 support level for a while, but lost support in the 104.2 range after last week’s sharp decline and is moving towards the main support zone in the 102.5-103 range, while maintaining a negative outlook for the week.
This area may be tested this week. In the event of a breakout, the index could drop to first-half support at 101.
On the other hand, the short-term moving averages continue to suggest that the decline may continue as it is in a reverse crossover phase.
On a weekly basis, the Stochastic Relative Strength Index (RSI) suggests there is more room to fall. In the short term, the indicator has begun to reflect oversold conditions. For a possible reversal, it becomes important to maintain the intermediate support level at 103.4.
However, there is currently little data to suggest that dollar demand is surging. As oil prices fell this week, the OPEC meeting’s decision to cut oil supply may lead to short-term reactionary buying of the US dollar.
Judging from the current situation, the index is more likely to continue the adjustment phase.
EUR/USD rose to the 1.09 zone in the process. USD/JPY has retreated sharply on USD weakness, with sellers selling off at the start of the week, dropping to the 147 range. Gold prices turned to the upside last week and started the week on a flat trend.
EUR/USD: Will the uptrend continue?
The euro rose against the dollar last week as expectations grew that the Federal Reserve would begin cutting interest rates sooner. In addition, euro zone inflation data released on Friday fell below 3%, which is another factor supporting the currency pair.
EUR/USD posted its highest gains on the day of US CPI data, reaching a key resistance point compared to the last downtrend this week, with price action breaking out of an ascending channel.
This week, resistance at 1.093, which corresponds to potential support (Fib 0.618), has become very important, and if it is exceeded, the pair may reach the next resistance level at 1.1, which corresponds to potential support (Fib 0.786). Otherwise, we could see the euro potentially falling to $1.083.
USD/JPY retreats, eyes lower end of ascending channel
USD/JPY has been in an upward channel since the beginning of the year, but began to come under pressure from last year’s high of 151 throughout November. Under this pressure, USD/JPY fell sharply, with U.S. data triggering a weaker dollar.
Although the appreciation of the yen has accelerated in recent days, it can be seen that its trend is still continuing within the upward channel.
Therefore, an important price level where a trend reversal could occur could be 146. A weekly close below this value could trigger a trend reversal in USD/JPY.
In addition, today’s test of the 148.3 level as short-term intermediate support is also on the agenda. While a daily close above this value indicates that the pair remains resistant, possible reaction buying could lead to a move towards the 150 level.