Market update: US dollar in holding pattern; key tech setups on EUR/USD, USD/JPY, GBP/USD

The US dollar, as measured by the DXY index, moved within a narrow range on Tuesday, displaying a lack of clear direction, but ultimately managed to eke out tiny gains. Mixed US Treasury yields and a sense of caution among market participants contributed to the muted price action, with traders adopting a wait-and-see approach ahead of high-impact events on the US economic calendar later this week.

DXY index

The release of core PCE data on Friday, the FOMC’s preferred inflation gauge, holds particular significance. This data point will provide fresh insights into the trajectory of consumer prices, which policymakers are watching carefully to guide their next move. Additionally, a speech by Fed Chair Powell on the same day will be closely scrutinized for any clues about the timing of the first rate cut of 2024.

However, here's the wrinkle: Friday falls on a bank holiday. In addition, some countries in Europe observe Easter Monday. This means the true market reaction to these events might be delayed until the following week. This extended period of anticipation could further add to a sense of hesitancy among investors, dissuading many from making large directional bets until a clearer picture emerges.

Holiday trading: managing forex volatility and key levels for EUR/USD, USD/JPY, GBP/USD

While Forex trading will continue, but it won't be business as usual. Reduced liquidity, a hallmark of holidays, can amplify price swings at times. Even seemingly routine trades can upset the delicate balance between supply and demand, with fewer traders around to absorb buy and sell orders. Hence, exercising caution is highly recommended for those planning to trade in the upcoming days.

Fundamentals aside now, the next portion of this article will revolve around examining the technical outlook for three key currency pairs: EUR/USD, USD/JPY and GBP/USD. Here, we'll dissect critical price thresholds that can act as support or resistance in the upcoming sessions – levels that can offer valuable insights for risk management and strategic decision-making when building positions.

US economic calendar

EUR/USD technical analysis

EUR/USD remained relatively unchanged on Tuesday, failing to capitalize on the previous session's rebound and stalling at confluence resistance at 1.0835-1.0850. Should prices face rejection at current levels, a retracement towards the 1.0800 mark might be anticipated. On continued weakness, the focus will be on 1.0725.

On the flip side, if EUR/USD resumes its advance and successfully takes out the 1.0835-1.0850 range, bullish sentiment could make a comeback, ushering a move towards 1.0890 in the near term. Additional gains beyond this juncture could reinforce buying interest, paving the way for a climb towards trendline resistance at 1.0925.

EUR/USD price action chart

USD/JPY technical analysis

USD/JPY displayed rangebound behavior on Tuesday, consolidating after last week's rally and hovering below critical resistance at 152.00. This key level warrants close attention as a breakout could prompt the Japanese government to step in to support the yen. In this scenario, we could see a pullback towards 150.90, followed by 149.75. On further losses, all eyes will be on the 50-day simple moving average.

In the event that USD/JPY breaches the 152.00 mark and Tokyo refrains from intervening to let markets find a new balance, bulls may feel emboldened to initiate a bullish attack on 154.50, a key barrier defined by the upper boundary of an ascending channel that has been in place since December of the previous year.

USD/JPY price action chart

GBP/USD technical analysis

GBP/USD also failed to build on Monday’s rebound, edging downwards after an unsuccessful push above both trendline resistance and the 50-day simple moving average at 1.2675. Should this rejection be validated in the upcoming days, a retest of the 1.2600 level may be imminent. Further losses from this point onward could prompt a descent towards 1.2510.

Conversely, if buyers return and propel cable higher, confluence resistance looms at 1.2675 and then at 1.2700, a key psychological threshold. Overcoming this technical ceiling might be tricky and could present challenges; however, a decisive breakout could reinforce upward impetus, potentially setting the stage for a rally towards 1.2830.

GBP/USD price action chart

^{This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.}