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USD Price Outlook: US Dollar Drives Towards Two-Year Highs

US Dollar Outlook Talking Points:

  • The US Dollar is closing in on a re-test of the Two-year-highs at the 98.32 level on DXY.
  • Yesterday’s FOMC minutes helped to keep the bid in the US Dollar. While the Fed didn’t talk up rate hikes at the earlier-month meeting, they also didn’t talk up cuts, communicating a ‘patient’ strategy at odds with market expectations that are looking for a 25 basis point rate cut in the second half of 2019.
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US Dollar Drives Towards Two-Year Highs

The US Dollar has continued to rally after yesterday’s release of FOMC minutes, with the currency eliciting a similar response to the earlier-month rate decision. At that meeting, the Fed was non-committal to future rate cuts. Markets, on the other hand, have come to expect a 25 basis point cut in the second half of the year, so the Fed not talking about this helped to bring a quick bid into the Greenback around Jerome Powell’s press conference on May 1st. That bullish theme in the US Dollar came to a screeching halt just a couple of days later around the release of April Non-Farm Payrolls, and the USD continued to pullback over the next week.

Last Monday is when the US Dollar found support, and this came-in around the 97.00 handle on DXY. Since then, it’s been a pattern of strength as prices have pushed back up towards the two-year-high at the 98.32 level, assisted with yesterday’s release of FOMC meeting minutes that echoed Jerome Powell’s comments earlier this month. The Fed talked up a ‘patient’ approach of waiting to see incoming data before making a decision on that next rate move.

US Dollar Four-Hour Price Chart

us dollar four hour price chart

US Dollar Exposed to Deductive Drivers

There is still one high-impact US print remaining this week with tomorrow’s release of Durable goods numbers. But, perhaps more important to the currency are drivers in other currencies that could, in-turn, impact USD flows. Specifically – European Parliamentary elections kicked off this morning, and this is being widely-seen as a referendum on the growing theme of populism in the bloc. As discussed yesterday, EUR/USD had been eerily quiet so far on the week; getting a bit of a bearish push this morning around a set of poor PMI’s released out of Europe, going along with ECB meeting minutes. The European Central Bank showed concern that growth may be even weaker than previously feared in the economy.

The big question is whether this weekend’s election results bring out the bears in the Euro. EUR/USD price action hasn’t traded below the 1.1100 area in almost two years, and so far in 2019, sellers have shied away from tests of this level. Below that, the psychological 1.1000 level lurks, and below that is a zone of potential support that runs from 1.0814-1.0863.

EUR/USD Weekly Price Chart

eur/usd weekly price chart

GBP/USD Bears Continue to Push as Political Uncertainty Remains Around the UK

Yesterday was a rough day for PM Theresa May but, at this point, she still has yet to give up. This, however, may not be a ‘great’ thing for the British Pound as sellers have continued to offer the currency lower, pushing down to fresh five-month-lows this morning as a wide swath of uncertainty envelops the Brexit theme. As looked at yesterday, GBP/USD is already flashing oversold readings on RSI via the Daily chart, and the four-hour chart has even begun to indicate divergence in the indicator, alluding to this being a difficult spot to establish fresh bearish exposure. But, sellers have nonetheless remained active, highlighting the potential for this theme to continue even despite the aggressive run that’s been priced-in over the past couple of weeks.

GBP/USD Daily Price Chart

gbpusd gbp/usd daily price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

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— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

Source: dailyfx.com