DXY Rebounds but Bearish Bias Remains – Analysis for EUR/USD, GBP/USD, USD/CAD, USD/JPY

DXY Rebounds from 7-Week Low but Bias Remains Bearish

The U.S. Dollar Index (DXY) saw modest recovery on Tuesday, lifting from a seven-week low of 97.253 to 97.701 by the New York close. The move follows a sharp downward revision to U.S. job growth that showed payrolls were overstated by 911,000 between April 2024 and March 2025. This has significantly increased the odds of a rate cut at the Federal Reserve’s upcoming meeting, with markets fully pricing in a 25-basis point move and assigning 12% probability to a 50-basis point cut.

Technically, the DXY found support just above July’s low of 97.109, but resistance remains firm near the 50-day moving average at 98.1 and the 61.8% retracement at 97.859. If the index fails to reclaim these levels, the next major support lies at 96.377. For now, traders are watching U.S. inflation data midweek, which may determine whether the bearish trend continues or a short-covering rally takes hold.

EUR/USD Eyes ECB with Inflation Calm and Political Risks in Play

The euro reached a seven-week high at $1.1780 before retreating slightly to $1.1721. The move came as the dollar softened on Fed expectations, while the euro benefited from firm inflation and record-low unemployment in the eurozone. Although the ECB is expected to hold rates steady on Thursday, market attention will center on policy signals amid relatively stable core inflation.

From a technical view, EUR/USD trades comfortably above both the 50-day and 200-day moving averages, with support at 1.1608 and resistance at 1.1780. The broader setup remains bullish, but any hawkish tone from the ECB could add fuel to the upside. Political developments, including the removal of France’s Prime Minister, are unlikely to trigger sustained euro weakness, according to MUFG analysts.

GBP/USD Holds Gains as BoE Defers Cuts, Fiscal Caution Looms

Sterling edged higher to 1.3558 on Tuesday, supported by Fed cut expectations and the view that the Bank of England may delay rate reductions until 2026. Recent long-dated gilt yield spikes suggest cooling fiscal concerns, although sterling remains vulnerable to shifts in UK budget expectations ahead of the November statement.

Technically, GBP/USD remains above both key moving averages, with near-term support at 1.3333 and resistance at 1.3595. As traders look ahead to the BoE meeting, a hawkish hold could maintain upward momentum for the pound.

USD/CAD Firms but Faces Headwinds Below 1.40 Handle

The U.S. dollar rose modestly to 1.3836 against the Canadian dollar, remaining below resistance at 1.3854. The pair continues to respect the 50-day SMA at 1.40 as resistance, while support sits at 1.3726. Canada’s relatively stable economic outlook and the Bank of Canada’s rate hold have kept CAD supported, though direction will likely hinge on broader USD trends and oil prices.

USD/JPY Weakens as BoJ Rate Hike Bets Resurface

USD/JPY dropped to 146.32, its lowest since mid-August, on speculation the Bank of Japan could raise interest rates later this year. The pair has broken below both the 50-day and 200-day SMAs, with near-term support at 146.30 and resistance at 149.13.

While political volatility in Japan remains high following PM Ishiba’s resignation, traders are focused on possible BoJ normalization, which could increase downside pressure on the dollar-yen pair if confirmed by forward guidance.

Short-Term Outlook: Dollar Bias Still to the Downside

Despite a technical bounce, the DXY remains under bearish pressure. Unless U.S. inflation data surprises to the upside or the Fed pushes back against market dovishness, the dollar may struggle to regain bullish momentum. EUR and GBP look relatively firm, while JPY could benefit from local rate hike speculation. CAD may continue to range, with oil and Fed policy providing directional cues.

More Information in our Economic Calendar.