US dollar rises but downside risks grow, settings on EUR/USD, GBP/USD ahead of Powell

US dollar rises but downside risks grow, settings on EUR/USD, GBP/USD ahead of Powell

US Dollar Forecast – EUR/USD, GBP/USD

  • the U.S. dollar Its recovery extends as US yields rise
  • Powell’s speech on Friday will take center stage
  • This article discusses the key technology levels to monitor EUR/USD And GBP/USD

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Most read: US consumer spending declines but the US Dollar Index (DXY) continues to advance

The US dollar, as measured by the DXY index, continued its recovery on Thursday, supported by a rebound in US Treasury yields after comments from San Francisco Federal Reserve Chair Mary Daly suggesting the Federal Open Market Committee is not yet considering lowering borrowing costs.

Daly’s strong stance, which contrasts with the more cautious stance taken by other colleagues, highlights the widening gap between doves and hawks.

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To address uncertainties related to the central bank’s broader stance, traders should closely monitor Fed Chairman Powell’s speech at Spelman College on Friday. This event may serve as a platform for the Chairman of the Federal Open Market Committee to provide clarification on monetary policy expectations.

Dovish comments favoring higher interest rates for a longer period are likely to put upward pressure on US yields, creating the right conditions for the US dollar to prolong its nascent recovery. On the flip side, the lack of a pullback from dovish market rates (several 2024 rate cuts have already been discounted) could weigh on yields, weighing on the dollar.

Technical analysis of the EUR/USD pair

The EUR/USD pair fell for the second day in a row on Thursday, with losses accelerating following the release of weaker-than-expected Eurozone inflation data for November. If the pullback gains strength in the coming trading sessions, the lower limit of the short-term ascending channel at 1.0890 could serve as support, but the possibility of a decline towards 1.0840 cannot be ruled out if a breakdown occurs.

Conversely, if the bulls regain control of the market and the exchange rate resumes its recent rise, the first ceiling to watch is at 1.0960, which corresponds to the 61.8% Fibonacci retracement of the July/October pullback. With more strength, a return to the November high is likely, followed by a possible rise towards the horizontal resistance at 1.1080.

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Technical chart of EUR/USD

EUR/USD chart created using TradingView

Technical analysis of GBP/USD

The GBP/USD pair also fell on Thursday, but managed to stay above technical support in the 1.2590 area. This moderate decline is unlikely to indicate a shift toward a negative outlook; It may even represent a brief pause in the near-term uptrend.

Maintaining the bullish outlook for the British pound requires the pair to remain above the 1.2590 level. If this bottom holds, GBP/USD could soon resume its upward journey after a short consolidation period, paving the way for a move towards the 1.2720 area, the 61.8% Fibonacci retracement level of the July/October low. Continued strength may draw attention towards 1.2800.

On the other hand, if losses intensify and sellers manage to push prices below 1.2590, we may see a decline towards the 100-day SMA and 1.2460 in case of continued weakness.

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GBP/USD technical chart

GBP/USD chart created using TradingView

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