US Dollar Sinks on Dovish Fed Policy, Settings on EUR/USD, USD/JPY, GBP/USD

US Dollar Forecast – EUR/USD, USD/JPY, GBP/USD

  • the U.S. dollar Weakening across the board as the Fed signals multiple interest rate cuts for next year
  • the Federal Open Market CommitteeTurkey’s dovish policy outlook led to lower Treasury yields
  • This article focuses on the technical forecast for EUR/USD, USD/JPY And GBP/USD Following the Fed’s initial pivot

Most read: Fed stays put, expects three rate cuts in 2024; Gold prices rise as yields fall

The US dollar, as measured by the DXY index, fell nearly 0.9% on Wednesday, dragged down by a massive drop in US Treasury bond prices after the Federal Reserve’s surprise guidance on the dovish side drew investors, who were expecting a different outcome, to pull back. Guard and on the wrong side of the trade.

In this context, the US Central Bank concluded its last meeting for this year today. Although policymakers kept borrowing costs unchanged at their highest levels in several decades, they gave the first signs of an imminent strategic pivot by adopting a more positive characterization of inflation and acknowledging that talk of lowering interest rates had begun.

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The Fed’s summary of the economic outlook reinforced the view that a policy shift is on the horizon, with a dot plot showing 75 basis points of easing next year, much more than expected in September. While Wall Street’s bets on rate cuts have been extreme, the Fed’s forecast is slowly converging toward market expectations — that would be bearish for the dollar and yields through 2024.

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With the broader US dollar falling, EUR/USD rose towards 1.0900 while GBP/USD jumped above an important ceiling near 1.2600. Meanwhile, the USD/JPY pair fell, falling rapidly towards the 200-day simple moving average – the last line of defense against a bigger pullback.

This article focuses on the technical outlook for major US dollar pairs such as EUR/USD, USD/JPY, and GBP/USD, examining key price levels following Wednesday’s huge moves in the FX space.

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Technical analysis of the EUR/USD pair

The EUR/USD pair rose on Wednesday, crossing the technical resistance level near 1.0830, which corresponds to the 200-day simple moving average. If this upward movement continues in the coming days, the bullish momentum could accelerate, paving the way for a rally towards 1.0960, the 61.8% Fibonacci retracement level of the July/October low. With more strength, attention will shift towards the 1.1015 area, last month’s highs.

On the other hand, if the bullish momentum fades and prices resume their decline, the first support to watch is at 1.0830, but there could be more losses awaiting the pair when it breaks below this threshold, with the next area of ​​interest at 1.0765. Continued weakness may draw focus towards trend line support, which is currently crossing the 1.0640 area.

Technical chart of EUR/USD

EUR/USD chart prepared using TradingView

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Technical analysis of the USD/JPY pair

The USD/JPY pair saw a bullish rally earlier this week, but that rally came to an abrupt halt on Wednesday when the Federal Reserve launched a broad sell-off of the US dollar. This sent the pair down sharply, pushing the exchange rate towards the 200-day simple moving average, which is the next major bottom to watch. The Bulls will need to defend this floor aggressively; Failure to do so could lead to a drop towards 141.70 and then 140.70 thereafter.

Conversely, if USD/JPY resumes its rebound, technical resistance looms at 144.50. Buyers may have a hard time breaking through this barrier, but if they can push prices above this ceiling, we could see a rally towards the 146.00 handle. With more strength, all eyes will be on 147.20.

USD/JPY technical chart

USD/JPY chart created using TradingView

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Technical analysis of GBP/USD

The GBP/USD pair rose and pushed resistance at 1.2590 on Wednesday after bouncing off trendline support near 1.2500, with advances fueled by a broader US dollar decline. If the pair can hold on to recent gains and consolidate to the upside little by little, we may soon see a retest of the 1.2720 level, which is the 61.8% Fib of July/October retracement levels. If it rises further, all eyes will be on the 1.2800 level.

On the other hand, if sellers come back and trigger a bearish reversal, initial support will appear at 1.2590, followed by 1.2500, near the 200-day SMA. Looking down, the focus shifts to 1.2455. GBP/USD is likely to stabilize in this area on a pullback before a potential return, but in the event of a breakdown, a move down to 1.2340 becomes a plausible scenario.

GBP/USD technical chart

GBP/USD chart created using TradingView

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