US Dollar Price Forecast: DXY Retests $101 on Triangle Breakout — Will GBP/USD and EUR/USD Break?

Currencies Reflect Policy Divergence and Domestic Fundamentals.

As at 25 June, the US dollar, the euro and sterling are underpinned by diverging monetary policy settings and underlying economic conditions.

US core inflation remains sticky, which is keeping the Federal Reserve cautious about further easing and continuing to support the US dollar as markets price in a more restrictive interest rate setting remaining in place for longer. US dollar demand has also been supported by strong domestic economic activity and its status as a key reserve currency.

Meanwhile, the euro remains a victim of uneven economic growth and the European Central Bank’s determination to achieve price stability. Differing government fiscal positions and inflation dynamics within the euro area, and how that impacts the transmission of monetary policy, means the euro continues to remain very sensitive to developments on growth and wages.

Finally, for sterling, the Bank of England faces a trade-off as the bank seeks to address services-related inflation while acknowledging softer growth. Domestic fiscal policy and labour market data is likely to continue to drive sterling, along with the relative policy setting compared to the Federal Reserve and European Central Bank for cross-rates.

Ultimately the macro backdrop remains one of divergence in relation to inflation, fiscal policy and growth that will continue to fuel two-way flows. Other underlying factors such as trade balances and capital flows will also continue to differentiate the currencies as investors try to judge what policy mix from central banks will keep growth from collapsing without inflation getting out of hand.

DXY Holds $101.54 – Triangle Breakout Retest Supports Bullish Continuation on the Daily Chart

On the Daily Chart, the DXY index is currently trading at $101.54, with bullish continuation candles attempting to reclaim the area near $100.36 (the triangle resistance breakout level) after the index bounced off the low of the $97.67 wave. The sequence of higher highs indicates that buyers are firmly in control here, and the index is still above the bullish moving trendline.

The daily RSI is now above 55, providing confirmation of the growing bullish trend. The volume profile suggests the breakout area at $100.36 has now become a support area, with the index expected to make a high of $103.09 in the coming weeks. Overall, as the index continues to trade well-defined, uptrend patterns (higher highs and higher lows) above $100.36, the structure is decidedly bullish.

Trade Idea: Buy at $101.54, targeting $103.09, with a stop-loss at $100.36.

GBP/USD Holds $1.3169 – Descending Channel Support Encourages Stabilization on the 4H Chart

On the 4-hour chart, the GBP/USD exchange rate is now trading at $1.3169. After rejection at the 50-period moving average of 4 hours around the $1.3320, mixed candles are attempting to find support in the channel of support area near $1.3109. A higher wave low in a downtrend suggests that buyers are starting to step in, and rejection wicks support that view.

The 4-hour RSI is around the 50 area, suggesting an ongoing neutral trend. From a volume profile perspective, the area between $1.3100 and $1.3160 should have a positive response to the price, and the 4-hour price of GBP/USD should trade in an area of resistance in the $1.3270-$1.3320 range. Although overall trends are still downtrending, the support area of the channel and a higher wave low is suggesting that the price of GBP/USD will be supported from the $1.3109 area by buyers.

Trade Idea: Buy at $1.3169, targeting $1.3320, with a stop-loss at $1.3100.

EUR/USD Dips to $1.1362 – Major Support Zone Attracts Buyers on the Daily Chart

EUR/USD is trading at $1.1362 on the daily chart. Following a steep price decline from the high of the $1.1927 wave, the current bearish candles are attempting to find support in the major demand zone near $1.1406. The sequence of lower highs indicates that sellers are firmly in control here, though the index is still finding a good response in the major demand zone area.

The daily RSI is currently in the 45 area, which is consistent with a bearish trend. The volume profile suggests the price of EURUSD should be tested at the support zone area between $1.1406 to $1.1450, while the resistance area is around the descending trendline near $1.1620. Overall, although the price is still in a strong downtrend, demand in the major zone has attracted buyers and support, which is visible by the presence of lower wicks after the last low of $1.1362.

Trade Idea: Buy at $1.1362, targeting $1.1620, with a stop-loss at $1.1300.