US Dollar Bounce Could Pressure EUR/USD and GBP/USD in the Near Term

The US dollar’s latest rebound continues to look corrective rather than the start of a broader trend reversal. Despite failing to close above key resistance levels, the greenback has shown resilience, holding support near its 50-day EMA.

With the weekly RSI still below 50, the dollar’s upside may be capped, but short-term momentum could strengthen as US data are backfilled following the government shutdown. This could see EUR/USD and GBP/USD come under renewed pressure if the dollar bounce gains traction.

View related analysis:

US Dollar Strength Could Limit Upside for EUR/USD and GBP/USD

US Dollar Technical Outlook

I’ve outlined in several recent articles that the current rebound in the US dollar appears to be a corrective move against its decline from the January high to the June low. For now, I expect this correction to terminate below the August high, which itself sits beneath the 100 handle.

Last week’s bearish inside candle marked the second consecutive week the US dollar index failed to close above the 200-week EMA, and the fifth straight week of alternating candle colours – a hallmark of corrective price action.

With the weekly RSI still below 50, it’s possible the corrective high is already in place. However, volatility could increase in either direction as US economic data are backfilled once the government shutdown is presumably resolved.

That said, I see potential for a short-term bounce in the US dollar index, given it held above the 50-day EMA and the 98 handle on Friday. The daily RSI (2) dipped into oversold territory, while the RSI (14) remains above 50 – a combination that favours the bears in the near term, and poses headwinds for GBP/USD and EUR/USD.

Chart analysis by Matt Simpson - data source: TradingView U.S. Dollar Index Futures (DX1!)

EUR/USD Technical Analysis: Euro vs US Dollar

The daily chart shows that EUR/USD snapped a 3-day rally on Friday, closing the day back beneath the 20 and 50-day day EMAs. The bearish day also marks the second candle of a 2-bar bearish reversal (dark cloud cover) to warn of a near-term dip.

I’m not looking for a particularly deep pullback on EUR/USD, but bulls could seek dips towards the 1.16 handle in anticipation of a higher low above last week’s lows. However. A high-volume node (HVN) sits around 1.1622 on the 1-hour chart. Also note the monthly S1 pivot point (1.1582) and 100-day EMA (1.1580) for additional support if needed. The monthly pivot point (1.1753) and 1.1779 high makes a viable upside target for bulls.

Chart analysis by Matt Simpson - data source: TradingView EUR/USD

GBP/USD Technical Analysis: British Pound vs US Dollar

Last week’s bias for a rebound from the 200-day EMA towards the lower VPOC played out well, with GBP/USD reaching the downside objective on Thursday before forming a doji (indecision candle) on Friday. While this could point towards a potential pullback for the British pound, the strength of last week’s advance suggests any retracement may be shallower than that seen in EUR/USD. In turn, this suggests EUR/GBP could trade lower this week if these assumption prove to be correct.

It’s also worth noting that much of the buying volume occurred in the upper half of the rally, which again implies that any dip could be limited.

GBP/USD bulls may look for opportunities to buy dips towards Friday’s low while maintaining a near-term bullish bias, provided prices hold above the weekly pivot point at 1.3381. Upside targets include the September VPOC at 1.3516, which aligns closely with the weekly R1 pivot level.

Chart analysis by Matt Simpson - data source: TradingView GBP/USD

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.