U.S. Dollar (DXY) Retreats After Touching New Highs

Key Insights

• U.S. Dollar Index lost momentum and pulled back towards 108.50. 
• EUR/USD is trying to settle above the psychologically important 1.0000 level. 
• USD/JPY is heading towards yearly highs as the Japanese yen remains under strong pressure. 

U.S. Dollar Moves Away From Yearly Highs

The U.S. Dollar Index faced resistance at yearly highs near 109.50 and pulled back towards 108.50 as traders continued to take profits at levels that were last seen back in 2002.

Meanwhile, Treasury yields keep moving higher as bond traders prepare for an aggressive rate hike from the Fed. The FedWatch Tool indicates that there is a 64.5% probability of a 75 bps hike at the next Fed meeting.

The Fed is expected to focus on fighting inflation after Powell’s hawkish comments at the Jackson Hole Symposium. It should be noted that DXY is already up by more than 13% year-to-date, so the U.S. dollar will likely continue to face strong resistance near yearly highs.

EUR/USD Tries To Settle Back Above 1.0000

EUR/USD continues its attempts to move back above the psychologically important 1.0000 level as traders react to rising yields in the EU. The yield of 10-year German government bonds gained strong upside momentum and made an attempt to settle above the 1.50% level. At the beginning of August, these bonds yielded just 0.80%.

Traders believe that the ECB will be forced to raise rates aggressively as inflation could get out of control due to high energy prices. At the same time, it remains to be seen whether euro bulls will find enough catalysts to push EUR/USD above the recent highs at 1.0090.

GBP/USD Moved Above 1.1700

GBP/USD is also moving higher after touching yearly lows near 1.1650. Currently, GBP/USD is trying to settle above the resistance at 1.1720. In case this attempt is successful, GBP/USD will move towards the next resistance level at 1.1750. A successful test of this level will push GBP/USD towards the resistance at 1.1785.

On the support side, a move below 1.1720 will push GBP/USD towards the support level at 1.1685. In case GBP/USD manages to settle back below this level, it will head towards the next support at the yearly lows at 1.1650.

From a big picture point of view, GBP/USD will likely need significant upside catalysts to break the downside trend as traders remain worried about the health of the UK economy.

Commodity-Related Currencies Rebound From Lows

AUD/USD and NZD/USD gained ground as traders reacted to the strong performance of oil markets. Several grain markets, like corn and wheat, have also moved higher today. AUD/USD has managed to get back above the 0.6900 level, while NZD/USD moved above 0.6150.

Meanwhile, USD/CAD declined below the 1.3000 level as strong oil pushed Canadian dollar higher. In case the rally in the oil markets continues, USD/CAD will have a good chance to gain additional downside momentum.

Japanese Yen Moves Closer To Yearly Lows

USD/JPY is testing the 138.50 level as the Japanese currency remains under strong pressure. Rising Treasury yields are bearish for the yen as the BoJ is expected to stay dovish.

In case USD/JPY manages to settle above 138.50, it will head towards the yearly highs near the 139.40 level.

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