The US Dollar Index retreated this week to test a resistance level close to its yearly highs, at a crucial time coinciding with political and economic developments that directly impact financial markets. Although general expectations indicate a continued positive outlook for the US currency in the long term, technical analysis reflects the possibility of weak upward momentum at the present time.
with investors focusing heavily on the possibility of a pullback or divergence in price action in the coming days from this pivotal area.
The US Dollar Index witnessed a decline of about 1.1% in a monthly crossover, recording a low of 103.37 before rising sharply after Trump’s victory in the US elections. Since then, the dollar has risen by about 2.5%, testing strong resistance levels this week at 106.10/37. This area is considered critical.
as it represents the highest close for 2023 and the highest close for 2024, making it a pivotal point in determining future market trends. Given these data, traders are anticipating a possible divergence in price action.
with the possibility of a decline in bullish momentum if the index fails to surpass these levels.
Technically, the US Dollar Index is trading within an ascending channel.
with a major resistance in the short term at 106.10/37. On the other hand, initial support is at 105.63, derived from May’s trading.
with additional support at 104.87/97, a level linked to the July CPI and February’s highs. If the index breaks these levels, the uptrend could face serious threats. If the index falls below the 200-day moving average or a 38.2% correction near 103.87/89, the market could witness a larger reversal in its downward trend.
EUR/USD Updates and Short-Term Technical Outlook
The EUR/USD pair hit a 2024 low on Wednesday, reaching 1.0610 before witnessing a slight recovery to reach the 1.0620 level. This came at a time when demand for the US dollar declined ahead of the US CPI announcement.
According to official data, inflation in the US rose in October by 0.2% on a monthly basis and 2.6% compared to the same period last year.
which is in line with expectations. The core annual reading was recorded at 3.3%, reflecting relatively stable price levels. Following the release of this data, the US dollar witnessed a slight decline.
supported by a limited recovery in US market futures.
On the other hand, there was not much important economic data at the beginning of the day.
except for the comments of the European Central Bank Governing Council member, Francois Villeroy.
in which he indicated that the European Central Bank may continue to cut interest rates in the future. Villeroy also expected inflation in France to remain moderate.
with the unemployment rate rising to around 8% before starting to decline again.
In the US session, several Federal Reserve officials are expected to participate in discussions that will interest the market.
as traders look for clues about the future monetary policy of the US central bank.
Short-Term Technical Outlook for the EUR/USD pair
In the short-term, the daily chart indicates that the EUR/USD pair is still trading in the green zone.
although it is still far from the highs recorded on Tuesday. The overall trend remains bearish.
as the pair is trading below all of its moving averages, reflecting the dominance of the selling trend. Moreover, the 20-day simple moving average shows a continued downtrend, reinforcing the overall bearish trend.
Australian Dollar against US Dollar Falls Amid Mixed Australian Wage Data
The Australian dollar against US Dollar fell on Wednesday, with the AUD/USD pair trading at 0.6512, down 0.12% from the previous day. The decline comes as Australian economic data points to a slowdown in wage growth.
Australian Wage Inflation in Line with Expectations
Q3 data showed wage inflation in Australia slowed to 3.5% year-on-year, down from 4.1% in the second quarter, slightly below expectations of 3.6%. This is the lowest wage growth since the fourth quarter of 2022. On a quarterly basis, wages grew by 0.8%, also below expectations of 0.9%.
The data is in line with the Reserve Bank of Australia’s forecast that wage growth has peaked. The bank expects wages to continue to slow in the fourth quarter of this year and next year.
increasing the chances of interest rate cuts in the future. However, the RBA remains on course for a rate hike in the near future, given that core inflation continues to exceed its 2% target.
Rate cut expectations supported by weak wage data
This slowdown in wage growth suggests that inflation is being controlled better.
particularly in sectors that have been hit by higher wages. However, service sector inflation remains elevated relative to the central bank’s target. This has made the RBA more hawkish than other major central banks that have cut rates in response to falling inflation. In this context.
expectations indicate that interest rates will likely be left unchanged at the December meeting, with a rate cut likely in the first half of 2025.
