Market update: US dollar in tailspin, price action setups on EUR/USD, GBP/USD and AUD/USD

The US dollar, measured by the DXY index, declined for a fourth consecutive trading session on Tuesday, settling below the 103.00 threshold and reaching its lowest level since early August. This drop was influenced by a retreat in US treasury yields.

In recent days, expectations for US interest rates have shifted towards a more dovish stance, as there are bets that the FOMC has concluded its tightening of borrowing costs and will adopt a more accommodative stance next year. This sentiment gained momentum when Federal Reserve Governor Christopher Waller, typically a hawkish voice, expressed confidence that monetary policy is appropriately positioned. He suggested that if inflation continues to slow, rate cuts could be considered.

Amidst this scenario, the euro, British pound, and Australian dollar demonstrated notable gains against the greenback, surpassing key levels in their exchange rates. In this article, we analyse the technical outlook for EUR/USD, GBP/USD, and AUD/USD, considering market sentiment, price action dynamics, and chart formations.

EUR/USD technical analysis

EUR/USD extended its advance on Tuesday, clearing Fibonacci resistance at 1.0960 and rising to its best mark in more than three months. If the pair holds onto recent gains - and establishes a support base near 1.0960, there's a possibility of an upward push towards 1.1080, following a period of consolidation. Should bullish momentum persist, attention could turn to the 2023 highs near 1.1275.

In case of a downward shift from current levels, it is imperative to closely monitor price action around 1.0960, bearing in mind that a breach of this technical zone could send the exchange rate towards 1.0840. On further weakness, we could witness a retreat towards the 200-day simple moving average, located slightly above confluence support near 1.0760.

EUR/USD technical chart

GBP/USD technical analysis

GBP/USD has been on a bullish tear in November, rising nearly 4.5% since the beginning of the month. After Tuesday's gains, the pair has reached its best level since late August but has been unable to reclaim the 61.8% Fibonacci retracement of the July/October slump (1.2720). If this ceiling holds, the upside momentum could run out of steam, paving the way for a drop towards 1.2590, followed by 1.2460.

In the event of a clear break above 1.2720, sentiment on sterling is likely to improve, unleashing animal spirits that could propel a potential upward move towards 1.2850. On further strength, buying interest could accelerate, opening the door to a climb toward the 1.3000 handle. Although the bullish case for GBP/USD is strong, it is important to exercise caution as the pair is about to enter overbought territory.

GBP/USD technical chart

AUD/USD technical analysis

AUD/USD jumped on Tuesday, breaching a key technical ceiling in the 0.6600-0.6620 band and reaching its strongest level in nearly four months. The bulls have been burned on several occasions by fake outs in the pair, so caution is warranted after the latest rally, but if this week's breakout holds, attention might pivot toward trendline resistance at 0.6675. Higher, the focus will be on 0.6800.

Conversely, if profit-taking among bullish traders leads to a price reversal, support appears in the 0.6620/0.6600 area. If this floor caves in, we could see a retracement towards the 200-day simple moving average, potentially followed by a retest of the 0.6525 region. Vigorous defense of this support zone is crucial for the bulls, as a breakdown could trigger a pullback towards 0.6460.

AUD/USD technical chart

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