Since the US elections 2016, it seems that US political risk has been the main driver of Dollar volatility. Focus has turned on the rising speculation of a potential US Dollar intervention.
The Dollar is traded softer since Asia session. Without delving into the overall market picture, Dollar has been mixed the past 2 months for a variety of reasons, with a large devaluation seen against safe havens and commodity currencies.
Even though the Dollar remains the King of the world’s currencies, it faces a lot of risks:
On the other hand, Geopolitical Risk is in general beneficial for the US Dollar.
The USD Index bottomed below 67.00. Softer US housing starts data weighed some on the Greenback, as did a pullback in Treasury yields. The narrow trade-weighted USD Index is down by over 0.5% from the highs seen on Tuesday. The USD Index is largely priced in for a 25 basis point Fed rate cut at the end of the month, and recent ranges will likely hold up until the FOMC announcement on July 31. As the asset is traded below 20-week SMA for 3 consecutive weeks, the medium term outlook remains neutral to bearish. Next Support levels are set at: 96.60, 96.35 and 96.00.
EURUSD has been lifted by a turn lower in the Dollar, which has retraced about half the gains it saw during the first two days of the week. This put EURUSD to a 2-day high at 50-day SMA, at 1.1243. A rekindling in expectations for the Fed to entertain an outsized 50 bp rate hike at the upcoming FOMC meeting, sparked by a WSJ report suggesting that trade negotiations between the US and China are at a “standstill,” has weighed on the US currency. As for the Euro side of the equation, there remain reasons to be not-too-bullish, including the economic-slowing impact of Brexit-related uncertainty, which has been affecting activity on both sides of the channel. Upcoming ECB meetings, starting with the one next week, have shifted to “live” status, with the central bank considering a gear-shift to an explicit easing bias. At the moment, there is a neutral view of EURUSD as it consolidates between 1.1200-1.1300 area the past 2 weeks, and in the longterm it has stuck between 1.1150-1.1350 range, for the past 2 months. The pair has trended lower from early 2018 through to March this year, but has since stabilized as the Fed shifted to a dovish bias. Support comes in at 1.1180-90.
Andria Pichidi, Market Analyst at HotForex
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Andria is a a Market Analyst with a mission to actively support HotForex’s clients in becoming better traders, by delivering daily market reviews.