US Dollar Price Forecast: Falls as ADP and ISM Data Loom – GBP/USD and EUR/USD

Market Overview

During European trading hours, the US Dollar Index (DXY), which tracks the USD against a basket of major currencies, slid back below 98.50 after showing a modest gain the day before. Traders are now waiting on key US economic data due later in the week, which could affect the Fed’s next move.

Fed Policy Uncertainty is Putting the Brakes on the Dollar

One thing that’s caught everyone’s eye is that Fed governor Stephen Miran thinks the Fed should be cutting interest rates much more this year to give the economy a bit of a kick. On the other hand, Minneapolis Fed President Neel Kashkari is warning that unemployment rates will rise if the economy slows, which is causing a stir.

Meanwhile, Richmond Fed President Tom Barkin is cautioning that any interest rate changes should be carefully considered based on the data, as there is a risk of missing our targets for employment and inflation.

And on top of all this, we’ve also got US President Donald Trump about to name a new Fed Chairman, which is adding even more uncertainty to the monetary policy outlook. According to the CME Group’s FedWatch, a pretty reliable tool, there’s currently an 82.8% chance the Fed will leave rates as they are at its meeting in mid January.

Economic Data is Top of Mind

Watch out for US ADP Employment Change and ISM Services PMI for December – both out later today. ADP is expected to show a small increase of 50,000 private sector jobs – that’s better than last month – and ISM Services is forecast to stay above 52, which is a good sign for the services industry.

Then on Friday, it’s Nonfarm Payrolls ( NFP) where job gains of 55,000 are expected – that’s a bit fewer than last month. And market expectations could get turned on their head depending on the numbers, so that traders will be keeping a close eye on these releases.

Geopolitical Tensions Just Aren’t Providing The Support You’d Expect

Usually, when there’s some safe haven demand, the dollar does okay – but with all the tension in the world, like the US and Venezuela, it’s had hardly any effect on the market so far. It’s mostly been the Fed’s policy & the upcoming reports that have traders most focused.

And not helping matters is that Fed officials are sending out mixed messages on rate cuts, so that’s just putting more pressure on the dollar – but still the DXY is struggling to hold onto its recent gains despite traders still being pretty cautious.

US Dollar Index (DXY) – Technical Analysis

The US Dollar Index (DXY) is hovering around $98.58, tucked away inside a rising channel on its 2-hour chart. Down below, you’ve got $98.50 and $98.15 serving as immediate support, while above you’ve got $98.85 and $99.07 layered on in the way of resistance – all clustered near the upper end of that channel.

To make things even more interesting, this move aligns with a shallow Fibonacci retracement, suggesting it’s more consolidation than a reversal.

If you look at the RSI, you’ll see it’s neutral, which reinforces the idea that things are pretty evenly balanced. You could pick up some green near $98.15, with an eye on reaching $98.85 – and to keep things simple, let’s put a stop in below $97.95.

GBP/USD Technical Analysis

GBP/USD is hanging out around $1.3499 on the 2-hour chart after a sharp rebound from an ascending trendline that began in mid-December. The recent candles are showing smaller bodies and upper wicks, suggesting fading momentum after the price ran into resistance at $1.3565.

On the bigger picture, the trendline still says we’re looking at higher lows, so that’s a pretty positive sign – and as long as we can stay above $1.3450, the trend’s still looking solid. Down below, you’ve got $1.3475 and $1.3415 serving as immediate support – both in line with prior demand and trend support.

And on the other hand, if you want to push higher, you’ve still got $1.3530-$1.3565 waiting in the wings as a key supply zone. You could pick up some green near $1.3450, with an eye on reaching $1.3565 – and to keep things nice and simple, let’s put a stop in below $1.3410.

EUR/USD Technical Forecast

EUR/USD is hovering around $1.1685 on the 2-hour chart and is starting to back off from a rising trendline that has been in charge since early December. The recent candles are a good indicator of dip buying near that trendline.

The bigger picture still says we’re in a higher-low situation, but the momentum has taken a bit of a hit after running into resistance at $1.1755. Down below, you’ve got $1.1660-$1.1650 waiting in the wings as immediate support, and if that breaks, $1.1615 comes into view.

On the other hand, if you want to push higher, $1.1705 and $1.1755 remain key resistance zones. You might be able to pick up some green near $1.1660, with your sights set on $1.1755 – and to keep things nice and simple, let’s put a stop in below $1.1615.