US DOLLAR FORECAST – EUR/USD, GBP/USD, GOLD PRICES

• The U.S. dollar weakens, approaching its lowest level since late July
• Few market catalysts on sight for the remainder of the week
• This article examines the technical outlook for EUR/USD, GBP/USD, and gold, analyzing important price levels that could act as support or resistance in the last week of 2023.

Most Read: US Dollar on Thin Ice, Setups on EUR/USD, USD/JPY, GBP/USD for Final Days of 2023

The U.S. dollar, as measured by the DXY index, retreated on Tuesday and flirted with its lowest levels since late July near 101.55 in a trading session characterized by thin liquidity, with many financial centers still closed for the Christmas holidays and ahead of the New Year's festivities.

Factoring in recent losses, the DXY index is down about 4.35% in the fourth quarter and about 1.9% in December. This drop is associated with the significant pullback in government bond yields, which have plummeted from the cycle high marked about two months ago.

The Fed’s pivot at its December FOMC meeting has reinforced ongoing market trends over the past couple of weeks. For context, the central bank embraced a dovish posture at its last gathering, signaling that it would deliver 75 basis points of easing in 2024, possibly as part of a strategy to prioritize growth over inflation.

With U.S. yields displaying a downward bias and a strong risk-on sentiment prevailing in equity markets, the U.S. dollar is likely to extend its decline in the short term. This could potentially lead to increased gains for gold, EUR/USD, and GBP/USD moving into the new year.

Focusing on important catalysts later this week, there are no major releases of note – a scenario that could create the right setting for a period of consolidation. Nevertheless, the dearth of impactful events doesn't guarantee subdued volatility or steady market conditions.

The reduced liquidity, characteristic of this time of year, can sometimes amplify price swings, as seemingly routine or moderate-sized transactions have the potential to upset the delicate balance between supply and demand. Caution is therefore strongly advised.

EUR/USD TECHNICAL ANALYSIS

After its recent climb, EUR/USD has pushed above overhead resistance stretching from 1.1000 to 1.1025. A sustained breakout in weekly closing prices might pave the way for a rapid advancement towards the 1.1100 handle. Further gains could draw attention to 1.1140, which corresponds to the upper boundary of a short-term bullish channel.

Conversely, if upside impetus fades and leads to a pullback below 1.1000, initial support rests at 1.0935, followed by 1.0830, near the 200-day simple moving average. The pair is likely to bottom out in this region before resuming its upward trajectory, but a move below this technical area could precipitate a decline toward 1.0770.

EUR/USD TECHNICAL CHART

EUR/USD Chart Created Using TradingView

GBP/USD TECHNICAL ANALYSIS

GBP/USD saw a modest uptick on Tuesday, but encountered resistance in the 1.2727/1.2769 zone, where a key Fibonacci level aligns with a downtrend line in play since July. To strengthen the bullish trend, overcoming this technical barrier is crucial; with a successful breakout opening the door for a move towards 1.2800, followed by 1.3000.

Alternatively, if sellers mount a comeback and trigger a bearish reversal, trendline support near 1.2600 will be the first line of defense against a pullback. This dynamic floor may provide stability in the event of a retreat, but a breakdown could send cable reeling towards its 200-day simple moving average hovering above 1.2500. Further weakness could shift focus towards 1.2455.

GBP/USD TECHNICAL CHART

GBP/USD Chart Created Using TradingView

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GOLD PRICE TECHNICAL ANALYSIS

Gold extended its advance and consolidated above $2,050 on Tuesday but fell short of breaching a key technical barrier in the $2,070-$2,075 range. If history is a guide, prices could be rejected from this region; however, a decisive breakout could bolster bullish sentiment, potentially ushering in a strong rally toward the all-time high near $2,150.

In contrast, If the bears regain control of the market and push XAU/USD lower and beneath $2,050, we could see a retracement towards $2,010. Maintaining this last floor is paramount for the bulls; a failure to do so might rejuvenate downward momentum, possibly leading to a decline towards $1,990. Below this, attention may turn to $1,975.

GOLD PRICE TECHNICAL CHART

Gold Price Chart Created Using TradingView

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