EUR/USD, GBP/USD, and USD/JPY expected to continue dollar weakness theme
US dollar weakness story looks likely to continue despite recent blips for EUR/USD, GBP/USD and USD/JPY.
EUR/USD weakness could be short-term in nature
EUR/USD has been losing traction since Friday's high, with the losses seen for equities feeding through into short-term dollar strength. Whether we see equities rise further is going to be key here, with the declines seen for inflation helping to bolster confidence that central banks will be able to ultimately shorten the tightening phase for central banks.
Given the dollar strength that has come with this phase of higher rates, it would be likely that we see it unwind once inflation fears become lessened. As we have seen over recent months. With that in mind, further upside does look likely before long. The daily chart highlights the uptrend playing out since late-September, with the recent pullback likely to ultimately resolve in another move higher. A decline through the $1.0483 support level would be required to bring about a bearish reversal signal. Until then, the bullish trend remains intact.
GBP/USD pushing upwards as inflation heads lower
GBP/USD has continued to move higher over the course of the past fortnight, coming off the back of a weak period at the end of 2022. Today has seen another fresh batch of inflation data, with UK consumer price index (CPI) falling back for the second consecutive month. However, it is notable that we are seeing core inflation tick higher, with the gap closing to highlight a lessening influence of volatile factors like energy.
The fact that inflation continues to roll over brings hope that we have seen prices top out. With that in mind, continued downside in prices should bring further upside for GBP/USD, where $1.2446 represents the notable resistance up ahead. To the downside, a move below the $1.2086 level would dampen this current bullish sentiment.
USD/JPY rebound likely to be sold into
USD/JPY has been on the slide over the course of the past three-months, with a shift in Bank of Japan (BoJ) approach coming as inflation takes the steam out of the dollar. However, we have seen a surprise decision to keep their YCC policy unchanged overnight, bringing downside for the Yen.
Despite today’s unwinding of positions that had anticipated a widening or abandonment of the YYC policy, the ongoing issues remain prevalent. As such, the recent downtrend remains intact, with further downside looking likely as a result. With that in mind, a bearish outlook remains intact unless ¥134.77 is broken. Keep an eye out for trendline resistance as another factor which could drive price lower once again.
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