US Dollar Technical Analysis: USD Looks to Recover Losses

US Dollar Technical Analysis (DXY, AUD/USD, USD/JPY)

• High impact economic data subsides next week, allowing room for the dollar to regain its composure

• AUD/USD eases after bullish breakout attempt

• USD/JPY edges higher, testing Japanese officials once more

‘High Impact’ Economic Data Takes a Step Back, Allowing Room for the Dollar to Regain Composure

The dollar sold-off notably after US CPI but has attempted to recoup those losses. Markets welcomed a lower headline and core CPI print with monthly measures cooling as well. As such, the focus has returned to rate cuts for the Fed, although greater confidence that inflation is falling towards the 2% target is still required within the Feds ranks. Markets now price two 25 basis point cuts into year end, looking like September and December will be the meetings to look out for but market expectations can change very quickly if incoming data deviates substantially from the consensus.

US Dollar Partially Claws Back Losses

The broad measure of dollar performance, the US Dollar Basket (DXY), has partially recovered from the recent decline, finding support around the intersection of the 200-day simple moving average (SMA) and the 38.2% Fibonacci retracement of the late 2023 advance ending in April of this year.

DXY now faces immediate resistance at the 50 SMA and the 61.8% Fib retracement of the 2023 decline. Next week sees a slowdown on the economic calendar with the FOMC minutes the main piece of new information. Quieter weeks tend to result in reduced volatility, meaning the FX market may revert to chasing high yielding currencies, like the dollar. One risk to the outlook is the sheer amount of Fed speakers lined up for next week alongside an address from the US Treasury Secretary General Janet Yellen.

AUD/USD Eases after Bullish Breakout Attempt

The Aussie dollar attempted a breakout post-CPI but the momentum has already looked shaky. The prudent approach to analysing breakouts is to look for a retest of prior resistance, now support. The level in question is 0.6644 (blue dotted line). AUD bulls will be searching for a bounce, followed by improved momentum to keep the bullish bias constructive. A break and close below 0.6644 ought to prompt a rethink of the bullish bias over the shorter-term with the next level of support at 0.6580.

USD/JPY Edges Higher, Testing Japanese Officials Once More

USD/JPY reversed higher, before a test of the 50 SMA and now trades comfortably above 155.00. The 155.00 level was previously thought to be the line in the sand that would attract a direct response by Japanese authorities which wasnt to be the case. The volatile conditions in the lead up to the 160.00 marker proved the final straw that broke the camels back.

The recent bullish move continues at the carry trade remains alluring to FX traders and is likely to continue to do so as long as the interest rate differential between the two nations fails to narrow in a material manner. Yen pairs are fraught with risk and prudent risk management techniques ought to be applied accordingly. The next level of resistance appears at the recent swing high of 156.78 with immediate support at 155.00.