EUR/USD, GBP/USD, USD/CAD, USD/JPY – U.S. Dollar Dives As Inflation Rate Drops To 3%

Key Insights

• EUR/USD tested new highs above the 1.1100 level. 
• USD/CAD pulled back as BoC raised the interest rate to 5%. 
• USD/JPY tested new lows as traders focused on the strong pullback in Treasury yields. 

U.S. Dollar

U.S. Dollar Index is under strong pressure as traders react to U.S. inflation reports. Inflation Rate declined from 4% in May to 3% in June, while Core Inflation Rate decreased from 5.3% to 4.8%. FedWatch Tool indicates that there is a 92.4% probability of a 25 bps rate hike at the upcoming Fed meeting in July. Traders expect that Fed will leave the interest rate at 525 – 550 bps until the end of 2023.

U.S. Dollar Index has already moved below the support at 101.15 – 101.00. In case the sell-off continues, it will head towards the next support level, which is located in the 99.60 – 99.80 range.

EUR/USD

EUR/USD tested new highs as traders focused on U.S. inflation data. Traders bet that ECB will be more hawkish than Fed in the upcoming months.

Taking a look at the daily chart, RSI is close to the overbought territory, but there is enough room to gain additional upside momentum. If EUR/USD settles above 1.1100, it will head towards the resistance in the 1.1170 – 1.1190 range.

GBP/USD

GBP/USD tests resistance at 1.2970 – 1.3000 as traders focus on the general weakness of the U.S. dollar. Treasury yields gained strong downside momentum, which was bullish for GBP/USD.

It remains to be seen whether GBP/USD will be able to settle above 1.3000 without any pullback as RSI is in the overbought territory.

USD/CAD

USD/CAD pulled back after BoC raised the interest rate from 4.75% to 5%. The decision met analyst expectations.

If USD/CAD manages to settle below the support at 1.3180 – 1.3210, it will head towards the support level in the 1.3080 – 1.3120 area.

USD/JPY

USD/JPY tested new lows as traders focused on falling Treasury yields. Traders prepare for the end of the rate hike cycle in the U.S., which is bearish for USD/JPY.

USD/JPY tests support at 138.50 – 138.80, but it remains to be seen whether it will be able to gain additional downside momentum as RSI is in the extremely oversold territory.

For a look at all of today’s economic events, check out our economic calendar.