US Dollar Price Forecast: Inflation Risks Lift DXY – Can GBP/USD and EUR/USD Hold Up?

US Dollar News: Fed Outlook Hit By Inflation Risk Renewal

The US dollar was supported by US data showing strength and inflation fears were revived by high energy costs as the week got under way. Retail sales increased 0.2% and core retail sales by 0.5% in June, plus initial jobless claims dropped to 208,000. This supported the idea that the consumer and job market were still strong. Those data raised the chance that the Federal Reserve will maintain the rate in July; futures markets see 60% chance of a rate increase by September, given that war could lead to higher inflation.

The European Central Bank meeting on July 23 will be the main focus for the euro, where rate decision will almost certainly be a hold for now on 2.25% deposit rate, though energy-induced inflation is a concern.

Sterling remains supported on the expectation of a more prudent government on the UK economy, and a cautious policy at the Bank of England, as markets see at least one more rate hike in the remainder of this year as inflation stays above target.

US Dollar Index (DXY) Technical Analysis: Dollar Tests Descending Trendline, RSI Still Neutral

The US dollar trades near 100.75 on the 4-hour chart following a relief from near 100.35 last week. Price has a clear trendline overhead that caps the move, plus price trades near and below 50-EMA (100.84) & 100-EMA (100.84), so the overall near-term move seems still under pressure despite the recent relief.

The first resistance is at 100.89, which is the trendline and at the 61.8% retracement level. If price can sustain a move past 100.89, the target will be 101.03, then 101.22, and 101.46. The nearest support is at 100.69. Further support will be near 100.61, 100.51, then the recent support near 100.35. The RSI is at about 49 and it indicates that the market momentum is balanced at current price as the buyers and sellers are having equal strength at this time.

For now, my view is that DXY is consolidating beneath the resistance and trendline. If price can get above the trendline, then the chance of broader recovery will get more favorable. If sellers push price away from current level, then there will be higher chance of seeing another test of 100.61 and 100.35 support.

GBP/USD Technical Analysis: Bullish Structure Above The Rising Trendline

GBP/USD is currently at 1.3466 on the 4-hour chart after falling from a peak near 1.3559. The pair is trading above the 50-EMA (1.3424) and the 100-EMA (1.3387), and the trendline remains up. This indicates that GBP/USD’s short-term structure is still favorable.

Resistance is found at 1.3475, then 1.3507, and at the recent swing high of 1.3559. 1.3449 is the first line of defence, with additional support at 1.3422 and the ascending trendline (around 1.3340). After declining from overbought levels, the RSI has fallen to 55.

As I see it, if GBP/USD remains above 1.3449, the recovery structure will remain in place; however, a decline below the trendline may lead to an extended consolidation to the EMAs.

EUR/USD Technical Analysis: Pair Keeps Above The Rising Trendline But Stuck Below 1.1461

On the 4-hour timeframe, EUR/USD sits at 1.1439, holding above the rising trendline and trading close to the 50-EMA at 1.1428. EUR/USD continues trading below the 100-EMA (1.1438) and the 1.1461-1.1493 area of resistance, where the bears have prevented higher gains in recent times.

On the downside, 1.1423 is the first support, followed by the rising trendline (around 1.1380) and the 1.1324 low touched in July. The RSI is trading near 51, signaling neutral market conditions.

In my opinion, EUR/USD is consolidating unless there is an upside close beyond the resistance area in question. The pair will be better off technically if it breaks out of this range and reaches 1.1493 and 1.1525; however, a breach of the rising trendline may result in a sell-off down to 1.1380.