U.S. Dollar Rebounds as Fed Signals Caution – Analysis for EUR/USD, GBP/USD

Market Overview

The US Dollar Index (DXY) briefly touched an intraday high of 100.20 before settling near 100.097, supported by a more cautious tone from the Federal Reserve.

Despite holding its benchmark interest rate at 4.5%, the Fed signaled ongoing inflation risks and an uncertain economic outlook, dampening hopes for immediate rate cuts.

Powell’s Comments Shift Market Sentiment

Fed Chair Jerome Powell emphasized the need for more data before any policy shifts, describing the current stance as “modestly restrictive.” This reduced market expectations for rate cuts, pushing the DXY higher as traders adjusted their outlook.

Traders Eye Key Data for Fed’s Next Move

Looking ahead, investors will closely watch upcoming inflation and labor market data, as the Fed’s data-driven approach remains in focus. With inflation pressures still present, the central bank is expected to maintain a cautious stance, keeping rate cuts off the table for now.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index (DXY) is trading around $100.097, attempting to reclaim ground above the 50-day Exponential Moving Average (EMA) at $99.662, a critical short-term support. The index has formed a series of higher lows, supported by an ascending trendline around $99.358, reflecting a gradual recovery from the late April lows.

However, the DXY faces immediate resistance at $100.378, a level that has capped several recent rallies. Clearing this barrier could set the stage for a test of the next significant resistance at $100.791, while a breakdown below the $99.906 pivot point might trigger a retest of the $99.358 support level.

With the DXY attempting to reclaim the 50 EMA, a break above $100.378 could confirm a bullish reversal, targeting $100.791. However, failure to hold above $99.906 might signal a deeper pullback toward the $99.358 trendline, where buyers are likely to re-emerge.

GBP/USD Technical Analysis

The GBP/USD pair is trading near $1.3273, testing a key support zone formed by a triple bottom pattern between $1.3258 and $1.3285. This area has attracted strong buying interest, creating a critical inflection point for the pair.

Immediate resistance is at the 50-day Exponential Moving Average (EMA) at $1.3322, which has capped recent recovery attempts. Clearing this level could open the path to the next resistance at $1.3340, with further upside potential toward $1.3398.

However, a break below the $1.3258 support could trigger a deeper decline toward the next major support at $1.3202, marking a critical test for the pair’s broader trend.

EUR/USD Technical Forecast

The EUR/USD pair is trading near $1.1287, facing downward pressure as it tests the 50-day Exponential Moving Average (EMA) at $1.1336. This level has acted as a key resistance, aligning with a descending trendline that has contained recent upside attempts.

On the downside, immediate support lies at $1.1271, a level that has held firm in recent sessions. A break below this zone could open the path to the next significant support at $1.1212, potentially attracting buyers looking for a deeper pullback.

To the upside, clearing the $1.1336 resistance is crucial for a potential reversal, with the next hurdle at $1.1421, where the descending trendline presents a significant challenge.