Most Read: US Dollar Gains Ahead of US CPI Data; Setups on EUR/USD, USD/JPY, GBP/USD

After a subdued performance earlier this month, the U.S. dollar (DXY index) advanced this past week, climbing roughly 0.23% to 105.31. This resurgence was buoyed by a slight uptick in U.S. Treasury yields and a prevailing sense of caution among traders as they await the release of April's U.S. consumer price index (CPI) figures, scheduled for this Wednesday.

The greenback could build upon its recent rebound if the pattern of consistently hotter-than-expected and sticky inflation readings observed this year repeats itself in next week's fresh cost of living data from the Bureau of Labor Statistics.

Consensus forecasts indicate that both headline and core CPI registered a 0.3% uptick on a seasonally adjusted basis last month, resulting in the annual readings shifting from 3.5% to 3.4% for the former and from 3.8% to 3.7% for the latter—a modest yet encouraging step in the right direction.

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US dollar shorts, aiming to thwart the currency's comeback, need to see an in-line or preferably softer-than-anticipated CPI report to launch the next bearish assault. Weak CPI figures could rekindle hopes of disinflation, bolstering bets that the Fed’s first rate cut of the cycle would come in September, which traders currently give a 48.6% chance of occurring.

FOMC MEETING PROBABILITIES

Source: CME Group

In the event of another upside surprise in the data, we could see yields rise across the board on the assumption that the Fed could delay the start of its easing campaign until much later in the year or 2025. Higher interest rates for longer in the U.S., just as other central banks prepare to start cutting them, should be a tailwind for the U.S. dollar in the near term.

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EUR/USD FORECAST - TECHNICAL ANALYSIS

EUR/USD rose modestly this past week, but so far has been unable to break above its 50-day and 200-day simple moving averages at 1.0790, a solid technical barrier. Bears will have to continue to defend this ceiling firmly; failure to do so could result in a rally toward trendline resistance at 1.0810. On further strength, the spotlight will turn to 1.0865, the 50% Fibonacci retracement of the 2023 decline.

In the scenario of price rejection from current levels and subsequent downward shift, support areas can be identified at 1.0725, followed by 1.0695. On a pullback, the pair could find stability around this floor before initiating a turnaround, but should a breakdown occur, we could see a rapid drop towards 1.0645, with the possibility of a bearish continuation towards 1.0600 if selling momentum intensifies.

EUR/USD PRICE ACTION CHART

EUR/USD Chart Created Using TradingView

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USD/JPY FORECAST - TECHNICAL ANALYSIS

USD/JPY regained strength and climbed past 155.50 this past week. If we see a follow-through to the upside in the days ahead, resistance awaits at 158.00 and 160.00 thereafter. Any rally towards these levels should be viewed with caution, given the risk of FX intervention by Japanese authorities to support the yen, which has the potential to trigger a sharp and abrupt downward reversal if repeated again.

On the flip side, if sellers mount a comeback and prices begin to head south, initial support materializes at 154.65, followed by 153.15. Further losses below this threshold could boost selling interest, paving the way for a move towards trendline support and the 50-day simple moving average positioned slightly above the 152.00 handle.

USD/JPY PRICE ACTION CHART

USD/JPY Chart Created Using TradingView

GBP/USD FORECAST - TECHNICAL ANALYSIS

GBP/USD declined slightly this past week, but managed to hold above support at 1.2500. To thwart a drop of greater magnitude, bulls must resolutely protect this technical floor; any lapse in defense could quickly precipitate a plunge towards 1.2430. Additional downside progression from this point onward could lead to a retreat towards the April lows at 1.2300.

Conversely, if buyers step in and drive prices above the 200-day SMA, confluence resistance extends from 1.2600 and 1.2630 – an area that marks the convergence of the 50-day simple moving average with two prominent trendlines. Surmounting this barrier might pose a challenge for bulls, but a breakout could usher in a move towards 1.2720, the 61.8% Fib retracement of the July/October 2023 downturn.

GBP/USD PRICE ACTION CHART

GBP/USD Chart Created Using TradingView

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