With US Dollar ‘Rebound’ Waning, EUR/USD and GBP/USD Could Bounce

The US dollar’s rebound appears to be running out of steam, raising the prospect of a recovery in EUR/USD and GBP/USD ahead of key US data releases. With inflation figures still due despite the government shutdown and jobless claims on schedule, weaker-than-expected readings could quickly undermine the greenback and reignite bullish momentum in the euro and British pound.

View related analysis:

US Dollar Weakness Could Lift EUR/USD and GBP/USD

On Monday, I outlined my bias for the US Dollar Index to rebound against last week’s sell-off, which I expected would pressure EUR/USD and GBP/USD lower in the near term. I also noted that any retracements in the euro and British pound could be limited before both currencies resume their upward trends. I believe we’re now entering that phase of the outlook, so today I’ll update my key levels.

Keep in mind that US inflation data is still scheduled for release tomorrow despite the ongoing government shutdown. The weekly jobless claims report will also be published today and remains one of the few data sets continuing on schedule. Weakness in either release could quickly feed back into a softer US dollar on renewed bets of Fed rate cuts.

Chart prepared by Matt Simpson – source: LSEG

US Dollar Index (DXY) Technical Analysis

It has been a decent start to the week for the US dollar, having staged a three-day countertrend rally from its 50-day EMA. However, if there’s one thing missing from this rebound, it’s conviction — both volume and bullish volatility are lacking. Daily trading volume has not only been trending lower for nearly two weeks but is now running at roughly half its 20-day average.

Given that this decline in volume coincides with the dollar’s bounce, it suggests the move so far is corrective. Also note the doji that formed on Wednesday, indicating a loss of bullish momentum — hence, I’m now on guard for a potential swing high.

The weekly R1 sits near the 99 handle, which could attract sellers if the dollar initially pushes higher.
The weekly pivot at 99.41 serves as a near-term downside target; a break below it would bring the 50-day EMA and high-volume node (HVN) at 97.63 into focus.
A move above the 99.28 high and 200-day EMA would invalidate the near-term bearish bias.

Chart analysis by Matt Simpson - data source: TradingView

EUR/USD Technical Analysis: Euro vs US Dollar

The euro declined for a third consecutive session against the US dollar, taking EUR/USD back to its monthly S1 pivot point near 1.1588. A small doji candle formed on Wednesday around this key support level, suggesting that bearish momentum may be fading. Also note that the weekly S1 pivot aligns with prior cycle lows, offering further potential support should we see another bout of volatility before a rebound.

If my assumption of a developing swing high in the US Dollar Index (DXY) proves correct, EUR/USD could now stage a recovery. The 50-day EMA (1.1664) represents a logical interim upside target for bulls over the near term, while a sustained break above that level would bring the weekly R1 pivot, monthly pivot, and the 1.1780 high into focus.

Chart analysis by Matt Simpson - data source: TradingView EUR/USD

GBP/USD Technical Analysis: British Pound vs US Dollar

The bounce from the 200-day EMA worked well — eventually. GBP/USD showed intent to rally from this key moving average a week last Friday, but it wasn’t until last Tuesday’s bullish hammer that we saw the real bounce materialise. The pair reached my upper target near the October VPOC, and since then, my near-term bearish bias has played out nicely this week.

Given Wednesday’s bullish hammer and the fact we’ve now seen four consecutive bearish sessions, I’ve shifted back to a near-term bullish bias. Note that the weekly S1 pivot sits just above the 200-day EMA and the 1.3278 support level, should momentum dip lower once more.

Overall, bulls may look to buy dips towards Wednesday’s low and maintain a bullish bias while prices remain above the 200-day EMA (1.3274).
1.35 could be the next target for bulls, near the monthly pivot point and September VPOC.

Chart analysis by Matt Simpson - data source: TradingView GBP/USD

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.