Last week, the US dollar struggled against most currency pairs before bouncing back towards the end of the week. This week, we could see a continued recovery in the greenback with a Fed taper now looking more likely than before — since the COVID pandemic started.
From a fundamental perspective, all eyes will be on the US durable goods orders on Thursday. Non-capital goods orders will also make an impact while the preliminary Q1 gross domestic product will provide a clear indication of where the US economy is at as we move closer to mid-year.
The USD losing ground against other majors ahead of durable goods data
Fundamentals data to look forward to
Durable goods orders for April are expected to post a growth of just 0.8%, which is slightly lower than the previous rate of 1%. Non-defense capital goods orders have a projected growth of 1.5% versus 1% previously while the preliminary Q1 GDP has an annualized forecast of 6.5% versus 6.4%.
Stronger-than-expected data on these figures especially for durable goods orders could push the dollar higher against the euro, the British pound, the Swiss franc, and the Japanese yen.
At the time of writing, the Euro (EUR/USD) is up 0.33% against the dollar, the pound (GBP/USD) has a slight edge of 0.05%. On the other hand, the greenback bettered the yen (USD/JPY) by 0.18%.
The bulls will target short-term profits on EUR/USD at around $1.2299 while the bears will look to pounce at 1.2202. The currency pair appears to be trading within an ascending triangle formation. This signals an inevitable breakout in the next few days.
GBP/USD bulls will target profits at 1.4220 while the bears will target pullbacks at 1.4030. The BoE’s governor Bailey spoke on Monday evening while two more of his colleagues (Tenreyro and Vlieghe) are scheduled to speak later this week. This could see the pound sterling extend gains against the greenback.
USD/JPY traders will target short-term bullish profits at around 109.31 while the bears will look for pullbacks at 108.58. They will be looking forward to Japan’s leading economic index on Wednesday as well as Friday’s inflation and employment data.
On the other hand, the USD/CHF traders will be looking forward to Wednesday’s ZEW survey expectations ( to assess market sentiment on the Swiss economy) for May and Friday’s KOF leading indicator, which assesses the Swiss GDP growth.
The bulls will target profits at 0.8984 while the bears will look to pounce at 0.8930. The currency pair was pinned at 0.8957 at the time of writing.
The DXY falls further — gold and crude oil spiking after last week’s hawkish FOMC minutes
On Tuesday, the US dollar index continued to trade below the $90.00 level following Monday’s data. The dollar index has been on a bearish run since the start of April and looks set to end the current month on a low.
Again, traders will be looking forward to the key events that will affect the greenback as discussed at the start of this analysis. And for the dollar index, they will also be looking forward to earnings reports with the likes of Nvidia, Dollar General, and Dollar Tree, as well as, HP all scheduled to report. Positive earnings reports boost activity in the market thereby strengthening the dollar index.
The bulls will target short-term profits at around 89.93 or higher at 90.17 while the bears will look to pounce at 89.53 or lower at 89.28 going into Wednesday.
The goldbugs will also be looking at the same events affecting the US dollar for signs of potential upside or downside. The reported hint about a potential tapering plan on the horizon, in particular, could see more traffic shift towards safe-haven assets like gold and silver.
The XAU/USD has recently spiked to trade above $1,890 following FOMC’s hawkish statement last week. Gold bulls will target short-term profits at around $1,920 while the bears will look to pounce for potential pullbacks at $1,870.
Crude oil futures responded positively to the latest reports that the Iranian nuclear deal hit a snag on Monday. Oil traders will be watching developments in the talks closely as they could shift the market sentiment. They will also be looking forward to Wednesday’s rig-count data from EIA.
The WTI crude oil price surged above $66 on Monday up from Friday’s low of $61.60. The bulls will target profits at around $67.00 while the bears will be targeting the $65.00 level.