Dollar Regains Traction but Softens As Euro Trends Higher

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The dollar is making a modest comeback, but it remains stuck below next-term barrier levels. The currency market is also showing signs of caution, with the dollar index hovering around 90. Over the next few days or weeks, the DXY’s movement will likely be reflective of most asset classes.

The current calm could be a breather before the dollar sellers launch another attack, as well as an indication of prolonged chart support from those levels. The financial markets are still trading in a narrow range today, as traders appear to be hedging their bets ahead of Friday’s US jobs report.

Following the release of the latest European inflation figures, the euro remained stable against the US dollar. Consumer prices in the Eurozone increased from 1.6 percent in April to 2.0 percent in May, according to data. This was the first time since 2018 that the statistic exceeded the European Central Bank’s (ECB) objective.

Inflation in the United States increased by 4.2 percent in April, exceeding the Federal Reserve’s objective of 2.0 percent. As a result, the new reading is likely to stoke speculation that the European Central Bank would begin to phase out some of its pandemic response instruments, such as fiscal stimulus. Next week, the monetary policy committee will meet.

Dollar Surge to Propel USD/JPY Bulls

Following a triple downside rejection at daily resistance of 109.37 on Wednesday, the dollar moved higher, limiting the negative effects of last Friday’s bull-trap above the 110 levels.

The dollar strengthened on increased expectations that US jobs data in May will be better than predicted and that the US economic recovery, vaccination, and inflation will be well ahead of Japan’s results, adding to the greenback’s positive signals. Moving averages are in a bullish setting, with fresh positive momentum underpinning the action, which is targeting the 110 level once more.

As concerns over US inflation fade, the USD/JPY is rising, trading around a daily high of 109.88. The pair could continue to rise, but it will need to accelerate beyond 110.10 to do so. Government bond yields are falling, implying that investors are more concerned with US economic growth than with inflationary pressures. However, the situation could change in the near future, as Federal Reserve officials have signaled that tapering could be discussed for the first time in over a year.