The dollar is trading down as we get into the new week, continuing the drop from Friday.
Even as oil prices continue to keep in the $80s and Treasury yields are remaining somewhat sticky, the dollar is starting to come under renewed pressure now. The charts are pretty telling about the current predicament for the US currency. And it’s all to do with the Fed.
[EUR/USD daily chart]
The most notable chart among dollar pairs right now is the EUR/USD. The pair is now moving back above the 100-day moving average (red line), after the Friday attempt to break the key level fell a little short.
But as we get into the new week, buyers are seeing renewed vigour and we’re also seeing a test of the 50.0 Fib retracement level of the swing lower from April to June at 1.1586.
If buyers can hold above both the key technical points, that will be a big win in establishing a stronger upside bias for the pair in the coming days. Besides the Fed minutes, there won’t be all too much else to distract traders this week; barring any major US-Iran surprises.
As such, that could afford some technical breathing room to the upside with the 200-day moving average (blue line) only seen at 1.1627 currently.
Adding to that, we’re also starting to see AUD/USD claw its way back up to a fresh two-month high:
[AUD/USD daily chart]
Buyers have been trying to shrug off the 100-day moving average (red line) here too, especially in the past two weeks. There have been some pushing and pulling but ultimately, the move higher today looks to be one that signifies that price action is “coming up for air”.
So, that could free up the path for a further push towards a test of 0.7200 next.
Besides that, we’re also seeing GBP/USD move up to 1.3550 levels with the July high of 1.3558 in focus. A firm break above that frees up the path towards testing the May highs next around the 1.3600-50 region.
After weeks of anticipation and wondering about the Fed outlook, it appears that traders are starting to lean more towards a less hawkish Fed for September.
Before the US CPI report last week, the odds of a move next month was still somewhat of a coin flip. But now, we’re seeing traders price in just ~29% odds of rate hike with ~71% odds of no change.
Even looking to year-end, traders are no longer pricing in a full 25 bps rate hike by the Fed for the remainder of 2026. The next full 25 bps rate hike is only priced for January next year with just ~36 bps of rate hikes priced in by June next year.
And with little else standing in the way between now and Jackson Hole next week, this narrative could run for a bit more; all else being equal. So, just be wary of that.
