Technical Outlook: Dollar Weakens On Less Hawkish Fed

Earlier in the week, we questioned whether another jumbo Fed rate hike would be enough to satisfy dollar bulls.

Well, we got our answer yesterday evening after the Federal Reserve raised interest rates by 75bps for the second straight month to tame inflation. King dollar offered a muted response and was more concerned with comments from Federal Reserve Chairman Jerome Powell.

The central bank head said a lot of things, highlighting the strong labour markets but weak economic indicators and inflation risk. However, it felt like markets were expecting a more hawkish Powell but instead offered a Powell who talked about rate hikes but left out details on timing. So according to the Fed chair, another “usually large” hike may be appropriate in September but this will be heavily influenced by economic data. He also mentioned that the Fed may slow hikes at some time in the future…

Time for USD bears to attack?

The dollar weakened against every single G10 currency yesterday despite the 75bps rate hike.

If such a jumbo rate hike was unable to excite dollar bulls, then imagine how the currency may react when the Fed raises interest rates by the expected 50bps in September?

Taking a look at the technical picture, the Dollar Index (DXY) is under pressure on the daily charts with prices wobbling above 106.00. A breakdown below this level could signal the start of a bearish trend with 104.60 acting as the first target.

We can see a similar scene playing out on the equally-weighted USD index. A breakdown below the 50-day Simple Moving Average may open the doors towards 1.1700. Below this level, bears are likely to target 1.1630 and 1.1450.

EURUSD to extend rebound?

A weaker dollar could provide a lifeline for EURUSD bulls, keeping prices above parity for slightly longer before the fundamental forces eventually drag prices lower. There seems to be something about the sticky 1.0200 level which has acted as support and resistance over the past few days. A solid breakout and weekly close above this level could encourage a move higher towards 1.0350. Should prices fail to conquer 1.0200, a move back to parity could be on the cards.

GBPUSD breakout inspires bulls

After bouncing within a range, the GBPUSD has finally experienced a breakout above the 1.2060 resistance level. This has been fuelled by a weaker dollar with further upside expected in the short to medium term. The next key levels of interest can be found at the 50-day Simple Moving Average and 1.2350 resistance level.

AUDUSD eyes 0.7050 resistance

Dollar weakness could propel the AUDUSD towards the 0.7050 level. A breakout above this point may open the doors towards 0.7150 and higher. Should 0.7050 prove to be reliable resistance, prices may decline back towards 0.6850.

USDJPY breaks below 136.00

We see a potential breakdown opportunity on the USDJPY. Prices are trading below the 136.00 support level and could decline towards 134.00 which is above the 50-day Simple Moving Average. A strong breakdown below 134.00 could open the doors towards 131.00.

EURJPY lower lows and lower highs

As the subtitle says, the EURJPY is experiencing lower lows and lower highs on the daily charts. Prices are trading below the 50, 100, and 200-day Simple Moving Average while the MACD trades below zero. A strong breakdown below 137.00 could pave a path back towards 134.50.

Time for gold to fight back?

Reduced expectations over the Federal Reserve maintaining an aggressive approach on rates could provide zero-yielding gold some breathing room. A weaker dollar is likely to complement upside gains, pushing prices further away from $1700. Talking technicals, a breakout above $1750 could signal a move towards $1784.

Dollar index EURUSD GBPUSD AUDUSD USDJPY Gold