The US dollar is a touch softer in the early hours of Tuesday, as the market continues to parse the idea of whether the Federal Reserve cutting rates later this year is a good or bad sign economically.
The euro has rallied significantly during the early hours here on Tuesday as we have bounced from the 50 day EMA and perhaps more importantly, the 1.16 level. The market has been bouncing around this area for quite some time and that doesn’t surprise me because, quite frankly, we’re at a fairly quiet time of the year anyway. And there are a lot of questions about, will the Federal Reserve cut rates and if they do, what does that mean?
All things being equal, if we were to break down below the lower part of the Friday candlestick, then we could go down to the 1.1575 level and then underneath there, we could go looking to the 1.14 level. On the other hand, if we broke a little bit higher from here, then the 1.18 level would be a major ceiling. At this point, I think we are just simply stuck in a short-term range.
The US dollar initially fell during the trading session on Tuesday, but it has bounced enough to see the 50 day EMA provide support. And it also is now threatening the 200 day EMA. I think we’re in an area here where we’re just killing time. And I think a lot of retail traders are probably stuck because they expected the US dollar to get eviscerated and we basically haven’t seen it fall apart. This is the old adage, the market has already priced it in.
So, with an interest rate cut in September and possibly December, you still have an interest rate differential that favors the US dollar against the Japanese yen, thereby, I believe, putting a bit of a floor in it.
The Australian dollar has been slightly positive against the US dollar, but really, this is still a “fade the rally” type of situation. It’s very underwhelming and the 0.6550 level continues to be a major barrier. The 200 day EMA sits just below the 50 day EMA sits right here. We formed a shooting star during the trading session on Monday.
I think you continue to see a lot of lackluster sideways action here, especially this time of year, because most assets are going to be missing volume, and therefore, you have to be very cautious expecting big moves. Short-term back and forth range bound trading is probably where you’re going to be seeing the Australian dollar move.
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Chris is a proprietary trader with more than 20 years of experience across various markets, including currencies, indices and commodities. As a senior analyst at FXEmpire since the website’s early days, he offers readers advanced market perspectives to navigate today’s financial landscape with confidence.