- The US dollar is on the defensive near one-month lows.
- The EURUSD pair explodes as the bull’s eye 1.1700.
- The GBPUSD pair remains range-bound and needs new catalysts.
The US dollar was upbeat Friday morning but remained at its lowest level in a month as the euro strengthened across the board. After plunging to one-month lows of 93.23 on Thursday, the dollar index, which measures greenback strength against the majors, regained the upward momentum powering to session highs of 93.40.
The bounce back on the US dollar after Thursday’s sell-off comes at the backdrop of the US 10 year yield bouncing back from lows of 1.52% to session highs of 1.60%. The dollar remains on the back foot ahead of the pivotal Federal Reserve meeting next week. The event is highly anticipated, with the markets expecting nothing less than asset tapering to combat runaway inflation.
EURUSD technical analysis
Amid the dollar weakness, EURUSD remains the biggest beneficiary jumping the biggest since gains registered in May. The pair rallied from lows of 1.1580 to session highs of 1.1691 on Thursday despite the European Central Bank chair Christine Lagarde turning out dovish.
All the major technical indicators have turned bullish following the ECB meeting signaling that the common currency could continue to gain some ground against the USD. After the blockbuster move up, the EURUSD faces strong resistance near the 1.1700 level.
The pair will have to rise and close above the critical resistance level to affirm the bounce back from one-month lows. Below the critical resistance level, it remains susceptible to pullbacks with an immediate support near the 1.1650 level.
A sell-off followed by a close below the 1.1650 level could reignite renewed sell-off back to lows of 1.1580 from where the current spike started. While all the major indicators are yet to signal overbought after the recent spike, the upside looks likely as the dollar continues to lose ground across the board.
Disappointing US Q3 GDP
The prospects of the euro strengthening against the dollar was reaffirmed by weaker than expected GDP data for Q3 that raised serious concerns about the health of the US economy. The data showed that the US economic growth decelerated to a 2% pace from 6% in the previous quarter and below the 2.75% growth rate expected.
It’s becoming increasingly clear that supply chain restrictions and a sharp decline in consumer spending continue to fuel slow economic growth. The Q3 gap data represents the weakest performance since the second quarter of last year at the height of the pandemic.
ECB dovish statement
Concerns about the health of the US economy helped shrug off the potential impact of a dovish European Central Bank Monetary policy statement. The ECB left the monetary policy unchanged, as expected, with no new signal on what the central bank intends to do at its next meeting in December.
The ECB president Lagarde pushing rate hikes hopes back was expected to rattle the euro. However, that was not the case as it strengthened against the dollar, sending the EURUSD higher.
With the ECB not expected to hike rates any time soon given its transitory inflation narrative, the euro could come under pressure. This would especially be the case on the FED policy statement turning out hawkish next week and hinting at rate hikes sooner than later in the US.
Meanwhile, the GBPUSD pair is struggling for direction, having struggled to power through the 1.3800 level. The pair has come under immense pressure near the 1.3790 level despite the dollar weakening across the board.
However, amid the weakness, the losses on the British pound remain limited following UK Chancellor Rishi Sunak’s multi-billion pound 2021 budget. Additionally, the sterling remains well supported by hawkish remarks from the Bank of England, which has signaled the prospects of rate hikes next year. Brexit-led concerns could limit the pound gains against the dollar going forward; consequently, the range-bound action in the market.