US Dollar Price Forecast: Under Pressure Ahead of NFP – GBP/USD and EUR/USD

Market Overview

On Tuesday during European trading hours, the US Dollar Index (DXY) saw its second day of losses, hovering around 98.20 as the safe-haven demand faded and economic worries weighed on market sentiment. Investors largely ignored the recent wrinkle in US-Venezuela developments, suggesting that geopolitical risks just weren’t bad enough to trigger a big move to the Dollar.

The data was a downer too, the US ISM Manufacturing PMI slumped to a dismal 47.9 in December, the worst reading since October, and the third month in a row it’s been in contraction territory. Markets had expected a bit more but instead got a big miss, and the picture this painted of a slowing down industrial sector isn’t pretty.

Production and inventory levels are still struggling, which has investors on edge about the economy’s momentum. On the jobs front, the Employment Index ticked up to 44.9, but it’s still a pretty worrying sign for the Greenback.

Fed people are starting to talk caution, too. Minneapolis Fed President Neel Kashkari said inflation is easing and that policy is neutral right now, but he also warned that unemployment could start to rise. That’s an important one to watch this week, as Nonfarm Payrolls comes out on Friday, when a pretty grim number could add to the pressure on the Dollar.

US Dollar Index (DXY) – Technical Analysis

The US Dollar Index (DXY) is currently trading at 98.26 and bouncing along the upper edge of a clear channel. It did jump off the 98.85 resistance zone, but is still holding above the support line around 98.15, which keeps the overall picture looking positive. The last few candles are mixed and show some indecision rather than a clear reversal either way.

The next level of resistance above is 98.50, then 98.85, and even 99.07, which is the top of the channel. Below 98.15, though, and you could see 97.95 come into view.

The RSI is right in the middle, which says momentum is pretty balanced at the moment. The trading idea is to pick up the Dollar on dips to 98.15 and aim for 98.85, with a stop if it breaks 97.95.

GBP/USD Technical Analysis

GBP/USD on the 2-hour chart is at about $1.3550 and making a bit of a move after breaking out above the $1.3520-$1.3530 resistance zone. It’s getting a bit of a boost from this rising trend line since mid-December, which is helping it move higher and producing some nice higher lows.

This is a clear case of buyers stepping in with some solid demand rather than just a one-off surge. Support at $1.3520 looks more shaky now, but there’s a lifeline in the trendline support around $1.3400.

On the upside, $1.3600 is the next point to watch, followed by $1.3650, which used to be a big supply zone. RSI is above the middle line but not overbought, which says it’s looking good but not getting too far ahead of itself. Ideas on the trade are to buy pullbacks to $1.3520 and aim for $1.3600 with a stop below $1.3475.

EUR/USD Technical Forecast

EUR/USD on the 2-hour chart is at $1.1728 after making a bit of a bounce in reaction to a touch on the rising trend line support from the November lows. It actually carved out a bit of a bounce from the $1.1658 to $1.1680 zone and is looking more positive. Price has reclaimed $1.1700, and that’s now a bit of a support zone.

The next bit of resistance above is $1.1755, then $1.1805, which was the top a few days ago. The overall picture still looks positive, though, with higher highs and higher lows, which keeps the bias looking good. RSI is central, which says momentum’s recovering but not getting overbought. Ideas on the trade are to pick up dips to $1.1700 and aim for $1.1805 with a stop below $1.1655.