US Dollar Forecast: DXY Drops as China Retaliates with New Tariffs – GBP/USD and EUR/USD Outlook

Market Overview

The US Dollar remained under pressure following weaker-than-expected economic data and escalating trade tensions. The JOLTS Job Openings dropped to 7.6 million, missing the forecast of 8.01 million, signaling a cooling labor market. Factory orders also disappointed with a 0.9% decline, worse than the projected 0.7% drop, amplifying recession fears.

Looking ahead, markets await key data, including the ADP Non-Farm Employment Change, expected at 148K, and the ISM Services PMI, forecast at 54.2. Any surprise could sway Fed rate expectations, influencing USD sentiment.

Meanwhile, China retaliated against new US tariffs, imposing duties on American LNG, crude oil, and agricultural goods, intensifying trade tensions. The move includes export controls on key metals like tungsten, hinting at broader economic impacts.

Despite temporary relief from tariff delays on Mexico and Canada, market sentiment remains fragile. Investors are bracing for heightened volatility, with the USD vulnerable to further downside if upcoming data disappoints.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is trading at $107.710, down 0.27%, reflecting a pullback after failing to sustain above the pivot point at $108.139. This decline signals bearish momentum in the short term, especially as the price slips below the 50-EMA at $108.349, which now acts as dynamic resistance.

Immediate resistance sits at $108.587, with another barrier close by at $108.592, both key levels for any potential recovery.

On the downside, support is found at $107.501, and if breached, could accelerate losses toward $106.924. The 200-EMA at $107.329 offers some cushion, but a decisive break below this could confirm further downside.

GBP/USD Technical Analysis

The GBP/USD is trading at $1.24973, up 0.15%, reflecting a modest bullish push after breaking above a key downward trendline. The pair has formed a bullish engulfing pattern, signaling strong buying interest.

Holding above the pivot point at $1.24630 reinforces the bullish bias, with immediate resistance at $1.25272. A breakout above this could open the path toward the next resistance at $1.25724.

On the downside, support lies at $1.23918, with stronger backing at $1.23371 if selling pressure resurfaces. The 50-EMA at $1.24240 and the 200-EMA at $1.23935 are acting as dynamic support, adding to the bullish case.

EUR/USD Technical Forecast

The EUR/USD is trading at $1.04048, up 0.25%, reflecting renewed bullish momentum. The pair has broken above a key downward trendline, supported by a bullish engulfing pattern, signaling potential upside. The price holds firm above the pivot point at $1.03692, reinforcing the bullish bias. Immediate resistance is at $1.04192, and a sustained break above could pave the way towards $1.04659.

On the downside, support rests at $1.03212, with stronger backing at $1.02711 if bearish pressure re-emerges. The 50-EMA at $1.03568 and the 200-EMA at $1.03749 provide dynamic support, aligning with the current price action.

While bullish sentiment dominates above $1.03692, any dip below this level could trigger sharp selling, shifting momentum back in favor of the bears.