As the greenback’s selloff continues today and picks up speed rapidly, the euro eventually breaks through the 1.2 handles against the dollar. Even so, other currencies have surpassed the Euro, especially Pound, which is currently the best, trailed by the Swiss Franc. Commodity currencies are still stagnating, partially because they are under tension from the Yen. All in all, the Dollar has a dovish outlook that is sure to persist.
Likewise, a break of the 1.3917 resistance for the GBP/USD pair should indicate the completion of the correction from 1.4240 to 1.3668. Further break of 1.4000 should confirm and reach the target at 1.4240 high. The focus now is on USD/JPY’s reaction to a 38.2% pullback from 102.58 to 110.95 at 107.75. A sustained break there will nullify short-term bullish sentiment in the pair and extend the entire pattern from 101.18 with another falling leg.
The Bank of England and the UK Treasury announced today the joint creation of a Central Bank Digital Currency Task Force (CBDC) to “coordinate research on a potential UK CBDC”. The Task Force will be co-chaired by Bank of England Deputy Governor for Financial Stability John Cunliffe and Treasury Chief Financial Officer Katherine Braddick.
The US dollar was rather weak on Friday, staying near a one-month low against a basket of peers as the Fed reaffirmed its view that any surge in inflationary pressures is likely to be temporary.
Besides, improved market sentiment prevented the dollar from receiving any safe-haven inflow from the market to kick-start, so the dollar retreated for the second week in a row. In contrast, market optimism tended to push US stock markets higher, with the Nasdaq, Dow Jones, and S&P 500 all hitting new all-time highs.
In the forex market, from a technical point of view, the US Dollar Index remained relatively stable, hovering just below the 91.65 (R1) resistance line. Despite the stabilization, we maintain our bearish outlook and will require a clear break of the downtrend line established since March 31 to reverse it. Note that the RSI indicator below our 4-hour chart is currently between 50 and 30, giving the bears perhaps a slight edge.
If the bears do stay in power, we may see the index break below the support line at 91.30 (S1), targeting 90.75 (S2). If the bulls gain the upper hand, we can see the Dollar Index break through the 91.65 (R1) resistance line, the previously mentioned downtrend line, and target the 92.15 (R2) resistance barrier.
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