US Dollar Forecast: Will DXY Bounce From 98.837 as EUR/USD, GBP/USD Extend Gains?

Market Overview

During the early European trading hours, the US dollar just couldn’t get any real momentum going and continued to take a hit, slipping under the 99.00 mark. But while its losing streak can be kinda blamed on rising trade tensions between the US and the EU, there’s a bit of a silver lining: expectations of the Federal Reserve putting rates back down have at least provided some support. Unfortunately, the main driver of the dollar’s losses remains the nagging fear of tariffs.

US Dollar Takes A Hit As US-EU Tensions Heat Up, But Strong Labour Market Data Offers Some Support

The world at large has taken on a rather more nervous feel, as the US and European Union start to get into a right old tiff. Former President Trump, only last week, casually dropped the bombshell that, from 1st Feb, 10% tariffs are going to apply to all imports from a bunch of big EU countries, including Denmark, Sweden, France, Germany, the Netherlands, Finland, the UK, and Norway.

These tariffs apply to a broad range of goods from these countries. The tariffs are set to remain in place until it gets permission to buy Greenland, that is. That announcement in itself has got investors getting all worked up and being very cautious indeed.

Despite the dollar normally being a safe place to hide, it’s not exactly rocketing up, as people are still getting a bit uncertain about the future. And one of those things is the dollar itself – all this uncertainty is weighing heavily on the greenback.

At the same time, though, some pretty good news for the dollar came from the US labour market, which has given it a bit of a boost. That labour market news also made investors think the Federal Reserve won’t be cutting rates anytime soon – can’t cut rates until inflation starts to get back on track towards that magic 2% target, apparently. For the moment, they’re expecting the first rate cut in June and another in September – rather than the 2 they were expecting earlier in Jan and April.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index (DXY) is hanging in around 98.837 – although it’s worth noting it’s starting to look pretty wobbly after breaking out of that rising channel. As far as the price action goes, the bearish vibe is getting stronger – it slipped under key support at 99.065, now that’s acting as a ceiling. The 50-period and 200-period moving averages are pretty much stuck in neutral, which is a sign the momentum on the bulls’ end is starting to flag.

Meanwhile, the RSI is really low, under 30 to be exact, which means this market is probably due for a bit of a relief bounce, but unless DXY can somehow manage to get back above 99.065, the overall tilt on this trade is pretty clearly down.

For DXY, the immediate support is going to be at 98.667 and 98.409. If that breaks, the next stop is 98.151, and the one after that is 97.863.

GBP/USD Technical Analysis

GBP/USD is currently trading around $1.3483 and is showing all the signs of a bullish trend after finally breaking above the descending trendline and the resistance at $1.3450. The fact that both short and long-term moving averages are on the rise is a big deal – it really reinforces that feeling that this pair is heading upwards.

The RSI is currently soaring above 70, which warns that the pair is getting a bit overextended and could be due for a breather or a bit of a pullback – maybe some traders are waiting for a sign that the party’s over before they start selling off.

If the price can hold its ground above $1.3494, the next stop is likely to be $1.3561 and then $1.3611; on the flip side, support levels are sitting pretty at $1.3450 and $1.3390.

EUR/USD Technical Forecast

EUR/USD is currently trading around $1.1684, showing some bullish steam after finally breaking above the short-term resistance at $1.1694. The price is moving up within a channel that’s been trending downwards, and if the pair manages to hold onto that breakout, it might signal a complete reversal of the trend is on the cards.

Meanwhile, the 50- and 200-period moving averages are starting to converge, which is a decent sign that the directional bias could be shifting. As for the RSI, it’s sitting pretty at 70 or above, which means the price is in overbought territory and likely due for a pullback at any minute.

If, however, the EUR/USD does manage to hold above $1.1694, there are a couple of other levels we should keep an eye on: $1.1744 and $1.1808. On the flip side, $1.1640 is the first port of call if we do get a pullback, followed by $1.1576.