US Dollar Outlook: Paused Downtrend or Just a Breather?

US Dollar Outlook: Paused Downtrend or Just a Breather?

Overview:

• AUD: Stuck in Range – The Aussie remains range-bound, awaiting a breakout above 0.63649 or below 0.63257.
• NZD: Weak with No Recovery – Testing equilibrium but still sliding with no signs of reversal.
• EUR: Bulls Holding Unless 1.04007 Breaks – Euro stays strong above key levels but risks downside.
• GBP: Losing Momentum – Breaking 1.26247 signals further downside unless bulls step in.
• EUR/GBP: Pound Gains Strength – Euro weakens as GBP takes control.
• CAD: USD Pushes Higher – Break above 1.42453 suggests more upside despite tariff concerns.
• CHF: Support Holding, No Reversal Yet – Testing 0.89651, but still under pressure.
• JPY: Bullish Momentum Continues – BoJ rate hike prospects keep Yen strong.
• USD/JPY: Yen Pressures USD – Further downside likely, targeting 148.643.

The US Dollar (DXY) has taken a pause in its downward move, as we haven’t seen a bearish daily close in the past two days. While this may seem like a potential reversal, we are yet to see clear signs of upside momentum. Instead, the market may be setting up to test a key Fair Value Gap (FVG) before continuing its downward trajectory—unless intraday price action confirms otherwise.

Key Technical Levels to Watch

1-Hour Resistance Test

Currently, the Dollar is testing resistance on the 1-hour timeframe. The price action at this level will be crucial in determining the next move:

• Bearish Scenario: If price creates only a wick at resistance and breaks below 106.462, we could see a continuation of the downside move.
• Bullish Scenario: If price manages to break above the FVG and sustain levels above it, we may see a potential shift in momentum.

For now, the bias remains bearish unless proven otherwise by strong intraday confirmations.

Fundamental Movers This Week

Upcoming Economic Data & Impact on the USD

This week’s economic calendar brings key data releases that could significantly impact the Dollar’s direction:

1. US GDP Growth Forecast (2.3%) – A lower growth rate compared to the previous reading may weigh on the Dollar. However, if inflation remains persistent and price levels continue to rise, there’s a chance of an upside surprise.
2. Durable Goods Orders & Personal Spending – If these figures come in higher than forecasted or previous readings, it would indicate that consumers are still spending despite inflation. This could support the Dollar in the short term.

US 10-Year Yield Signals Weak Dollar Outlook

In our previous analysis (Commodity Markets Pause: Gold, Oil, US Yields), we highlighted the lack of bullish momentum in the US Dollar. This trend is now being reinforced by weakness in the US 10-Year Treasury yield (US10Y), signaling that investors are not finding the dollar particularly attractive.

The declining yield suggests weaker demand for US bonds, which often translates to lower capital inflows into the USD. Without strong yield support, the dollar’s upside potential remains limited, keeping it vulnerable against other currencies.

The US10Y yield (10-year Treasury yield) and the U.S. dollar (USD) have a strong but complex relationship influenced by interest rate expectations, risk sentiment, and capital flows. Here’s how they interact:

1. Higher US10Y Yield → Stronger Dollar (USD ↑)

• When the US10Y yield rises, it means U.S. government bonds offer higher returns.
• This attracts foreign investors, who need to buy USD to purchase Treasuries.
• Increased demand for USD strengthens the currency.

2. Lower US10Y Yield → Weaker Dollar (USD ↓)

• A fall in US10Y yield suggests lower returns on U.S. assets.
• Investors may shift to higher-yielding foreign markets, reducing USD demand.
• As capital flows out, the dollar weakens.

3. Inflation & Fed Policy Impact

• The Federal Reserve’s stance on interest rates influences both the US10Y yield and the USD.
• If inflation rises and the Fed signals rate hikes, the US10Y yield and the USD typically increase.
• If the Fed cuts rates, both tend to decline as lower yields make the USD less attractive.

4. Risk Sentiment Factor

• In times of economic uncertainty, investors seek safe-haven assets, boosting U.S. Treasury demand.
• Higher Treasury demand pushes yields lower, but the USD can still strengthen due to its safe-haven status.

US Dollar Weakness: How Major Currencies Are Reacting This Week

The US Dollar is taking a breather, and the effects are rippling across the forex market. Here’s how major currencies are responding and what key levels to watch.

AUD: Stuck in a Range—For Now

The Australian Dollar remains range-bound after the USD paused its downside move.

Key Levels to Watch:

✅ Bullish Breakout: Above 0.63649

❌ Bearish Breakdown: Below 0.63257

NZD: Retesting Equilibrium

The New Zealand Dollar is retracing, currently testing the 50% level of the previous range. 

🔻 Intraday momentum remains bearish with no signs of a strong recovery yet.

EUR: Tapped the 1.05140 Level

As Dollar on a breather, we could see further downside with EUR. But note that we are still not in a confirmed bearish territory as the price action of EUR still favors the bulls.

Key Levels to Watch:

🔹 Bullish Bias Intact unless 1.04007 breaks

🔹 Bearish Confirmation only if 1.04007 fails

Potential Catalyst: Eurozone Inflation Data

With the USD pausing, the Euro could see further downside—but it’s not in confirmed bearish territory just yet. Upcoming inflation data from Germany and Italy could trigger volatility in the Euro.

GBP: Losing Steam

The British Pound is showing signs of exhaustion after breaking its bullish structure.

📉 Further downside likely after losing the 1.26247 support level.

EUR vs. GBP: Pound Gaining Ground

The Euro has broken down from its range, giving GBP an edge in the near term.

CAD: Struggling Against USD

The Fair Value Gap failed to hold, and the USD is regaining strength against the Canadian Dollar.

🔺 USDCAD broke resistance at 1.42453, signaling potential further upside.

Tariffs Still in Play

Despite concerns over economic backlash, Trump confirmed that tariffs on Canadian and Mexican imports remain in effect, with a 25% tariff on Canada set to take full effect next week.

CHF: Testing the 0.89651 Level

The Swiss Franc is still swinging lower, with USDCHF testing support at 0.89651.

📉 No strong signs of a bullish reversal for USDCHF yet.

JPY: Yen Momentum Still Strong

The Japanese Yen continues its bullish momentum as the Bank of Japan prepares for rate hikes.

USDJPY: More Downside Ahead?

As USD weakens and JPY strengthens, USDJPY could continue its downward trajectory toward 148.643.

With the USD losing momentum, major currency pairs are at key inflection points. Will we see follow-through weakness or a reversal soon? Keep an eye on inflation data, central bank policies, and technical levels for the next big move.

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