US Dollar Price Forecast: Hot CPI Fuels DXY Breakout — Will GBP/USD and EUR/USD Break Lower?

Dollar Gains Ground on Sticky Inflation and Policy Divergence

The dollar, euro, and pound trade as of June 11 following a higher-than-expected May CPI report from the United States in which headline inflation increased to 4.2% y/y in May from 3.8% in April due to energy prices increasing by 23.5% as supply from the Persian Gulf was disrupted. In addition, core CPI increased to 2.9%, underscoring stickier inflation and a delayed Federal Reserve (Fed) pivot. This continues to support the greenback due to a U.S. budget deficit, the currency acting as a safe haven, and an interest-rate widening with the ECB and BoE.

Today, it is widely expected the ECB increases rates slightly due to similar energy-related inflation pressures but weaker growth. However, the market is anticipating limited tightening due to the risks in the euro area. Similarly, the Bank of England (BoE) is under pressure to tighten amid higher-than-target U.K. inflation and uncertain growth prospects.

The dollar maintains a structural edge due to the U.S. deficit, the dollar’s role as the global reserve currency, and deeper capital markets, among other things. Today, the ECB rate decision and further deterioration of geopolitical risks are a challenge for the EUR and GBP, as these currencies trade in spite of narrowing interest-rate differentials.

DXY Hits $100.07 – Green Continuation Above 0.236 Fib on 2h

DXY trades at 100.07 on 2h. Green candles that broke out 0.236 Fib at 99.97 and red 50 period MA at 99.81 are continuing above it. Bodies are bullish and they have small wicks. Higher highs from the swing low at 99.56 show that buyers are in control. Price is respecting the floor of the blue ascending channel that prints higher lows and it is very clean on the 2h. RSI is near 55. RSI is bullish.

Volume profiles 99.69 to 99.81 as dynamic support. The white trendline that forms at the lows adds to the support. Market structure is bullish if it stays above 99.81. The price is also contained inside the blue up-channel, a relatively clean structure as well. Higher highs and higher lows are still present, keeping buyers active on the small dip.

Trade Idea: Buy $100.07 targeting $100.47, stop $99.81.

GBP/USD Steady at $1.3365 – Red MA Pressure on 2h

GBP/USD trades at 1.3365 on 2h. It is in red MA resistance of 1.345 as well as inside a white ascending trendline. The mixed candles respect the white trendline as support and green wicks are bullish as it retests it from 1.332. The wicks are higher lows from the pivot of 1.332 suggesting buyers are absorbing. RSI at 52.

Volume profiles 1.334 as a floor. There is resistance at 1.340 to 1.345 next. Price is neutral to bullish if it stays above the trendline. It is contained inside the channel and higher lows make sure buyers are on board when price pulls back.

Trade Idea: Buy $1.3365 targeting $1.345, stop $1.332.

EUR/USD Dips to $1.1533 – 0.236 Fib Retest on 2h

EUR/USD trades at 1.1533 on 2h. The price retests 0.236 Fib at 1.1534 after a rejection at the 0.618 Fib. The mixed red/green candles are in a red 50 period MA of 1.158 and also in a blue trendline that goes from the high to the lows. Wicks are red but the reds are limited, suggesting there aren’t much more sellers following the reds. Buyers defending the support. RSI near 48.

Volume profiles 1.152 to 1.155 as a pivot. Market structure is neutral to bearish if it stays below 1.158 and also is contained inside the range. Fib is a big confluence.

Trade Idea: Buy $1.1533 targeting $1.1589, stop $1.1500.