U.S. Dollar (DXY) Is Under Strong Pressure At The Start Of The Week

Key Insights

• U.S. dollar is moving lower as some traders believe that potential hawkish moves from the Fed have been already priced in by markets. 
• EUR/USD gains ground as traders bet that the ECB will have to raise rates aggressively. 
• USD/JPY has stabilized near the 142.50 level. 

DXY Settled Below 108.50

U.S. dollar rebounded from session lows but remains under pressure as traders continue to prepare for the Fed Interest Rate Decision, which will be released on September 21.

The FedWatch Tool indicates that there is a 88% probability of a 75 bps rate hike at the next meeting. Traders expect that this rate hike will be followed by a 50 bps hike at the Fed meeting in November.

The key question is whether these hawkish moves have been already priced in by markets. Judging by the recent moves in risk-sensitive stocks, traders are willing to increase their positions in riskier assets, which is bearish for the U.S. dollar.

Currently, the U.S. Dollar Index has settled below the 108.50 level. In case DXY manages to get back above this level, it will move towards the 109 level.

EUR/USD Faced Resistance Near 1.0200

EUR/USD has recently made an attempt to settle above the 1.0200 level but faced strong resistance and pulled back towards 1.0120.

It looks that traders are willing to bet that the ECB will be forced to raise rates aggressively due to rising inflation in the Eurozone.

EUR/USD is currently trying to stay above the 20 EMA at 1.0120. In case this attempt is successful, EUR/USD will move towards the resistance level at 1.0150. A move above this level will push EUR/USD towards the resistance at 1.0180. If EUR/USD gets above 1.0180, it will head towards the next resistance near the recent highs at 1.0200.

On the support side, a move below the 50 EMA will push EUR/USD towards the support at 1.0090. In case EUR/USD declines below this level, it will head towards the next support level, which is located at 1.0050.

GBP/USD Tests Resistance At 1.1700

GBP/USD is trying to settle above 1.1700 despite weak economic data from the UK. Today, UK reported that GDP increased by 0.2% month-over-month in July, compared to analyst consensus of 0.4%.

Industrial Production declined by 0.3% month-over-month in July, while analysts expected that it would grow by 0.4%. Manufacturing Production increased by just 0.1%.

It should be noted that the British pound was oversold after the multi-week pullback, so the current rally may be partially fueled by profit-taking.

AUD/USD Gains Ground As The Rebound In Commodity Markets Continues

The strong rebound in commodity-related currencies continues as commodity markets are moving higher.

AUD/USD gained strong upside momentum and moved closer to the 0.6900 level, while NZD/USD managed to settle above 0.6150. Meanwhile, USD/CAD moved below 1.3000 and is trying to get to the test of the 1.2950 level.

The strength of the current rebound depends on the dynamics of commodity markets, so traders should closely monitor the developments in oil, silver, and copper markets.

USD/JPY Is Mostly Flat In Volatile Trading

USD/JPY settled near 142.50 after an unsuccessful attempt to move above the 143.50 level. The general weakness of the U.S. dollar provided some support to the Japanese yen.

However, the yen lacks bullish catalysts as the Bank of Japan is expected to maintain its dovish policy. If the U.S. dollar starts to rebound against a broad basket of currencies, the yen will likely find itself under more pressure.

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