US Dollar Price Forecast: Dollar Strengthens on Fiscal and Reserve Status — Can GBP/USD and EUR/USD Hold?

Currencies Navigate Divergent Policy and Growth Paths

As of June 23, the U.S. dollar, euro, and pound are diverging along monetary-policy and domestic economic trends. Sticky core inflation in the United States has left the Federal Reserve hesitant to cut rates, which is bolstering the dollar as markets anticipate a somewhat hawkish bias on interest rates. Fiscal slippage in the U.S. government’s deficit as well as the USD’s status as the global reserve currency add support to the greenback despite healthy domestic growth.

Meanwhile, the euro is contending with uneven growth prospects across the euro zone as well as a recent move by the ECB to adjust rates to manage inflation expectations. Divergent fiscal conditions within the euro area combined with sectoral exposures to energy prices remain factors in determining how quickly rate adjustments in Europe will pass through to headline growth. As such, the EUR/USD is prone to swings on growth and inflation data released in Europe.

The pound is also navigating different conditions as the Bank of England weighs persistent domestic services inflation and weaker growth. Domestic wage growth and fiscal policy are key influences to the future direction of the cable, while the divergence in monetary policy between the BoE, Fed, and ECB creates potential for more volatility in cross-rates.

All the while, differences in inflation dynamics, growth, and domestic debt in the United States, Europe, and UK are creating a backdrop of uncertainty that leaves both currencies with two-way risks over the coming months. Trade and capital flow trends also add nuances to the relative attractiveness of these three global reserve currencies to those trying to decide which central bank can best restore price stability without undermining growth.

DXY Climbs to $101.06, Triangle Break Confirms Bullish Trend. Daily Chart

Price is sitting at $101.06 on the daily timeframe. Following a successful bounce off the 50 period moving average, bullish continuation candles have surged past the triangle resistance zone located around $100.36. With bullish engulfing candles in play and the pair posting a string of higher highs since the $97.67 swing low, buyers are clearly in control. Price action is now expected to advance to the Fibonacci extension of $103.09 over the next few weeks.

The RSI has pushed through 55, confirming increasing bullish power. Volume profiling reveals the $100.36 level as the main breakout point, while a resistance trendline from prior tops has now flipped to support. Price structure stays predominantly bullish above $100.36 inside a rising channel. It is the higher highs and higher lows that suggest a favorable outlook for buyers.

Trade Idea: Buy at $101.06, targeting $103.09, with a stop-loss at $100.00.

GBP/USD Holds $1.3236 – Descending Channel Support Encourages Stabilization on the 2H Chart

On the 2H, the pair is transacted at $1.3236. Candles with mixed results have been holding onto the lower edge of the channel in the $1.3109 range after the price bounced off the 50 period moving average around $1.3320. Bullish rejection wicks suggest buyers are absorbing selling pressure, while higher lows remain intact.

The RSI is currently bouncing off the 50 range indicating balanced power. The most active price levels in the $1.3160 to $1.3200 range as the price is consolidating. Resistance has appeared in the $1.3320 to $1.3380 area. Market structure is neutral to bullish above support on the channel but the pair is in a longer downtrend. However, buyers are still picking off the higher lows when they are in view.

Trade Idea: Buy at $1.3236, targeting $1.3380, with a stop-loss at $1.3100.

EUR/USD Slides to $1.1423, Support Level Draws Buyers. Daily Chart

The pair is changing hands at $1.1423 on the daily chart. After dropping from a recent high of $1.1927, bearish continuation candles have come into the $1.1406 major support area. A sequence of lower highs shows that distribution is occurring yet price has so far held above that support zone.

The RSI is currently testing levels near 45 indicating the loss of some momentum. Volume profiling identifies the $1.1406 to $1.1450 zone as the primary support level and a descending trendline is keeping a lid on the upside near $1.1620. Market structure continues to be bearish or neutral from $1.1620 and below while that support level is drawing buyers. We are seeing buying activity at this range with the appearance of wicks of rejection off of recent bottoms.

Trade Idea: Buy at $1.1423, targeting $1.1620, with a stop-loss at $1.1350.