US Dollar Strengthens as Treasury Yields Hover Above 3.90%, EUR/USD Under Pressure

Market Overview

On August 30th, the Eurozone released its CPI Flash Estimate, which held steady at 2.2% year-over-year, matching expectations but reflecting a continued slowdown from the previous month’s 2.6%.

The U.S. Core PCE Price Index, a key inflation gauge, came in at 0.2% month-over-month, reinforcing the Federal Reserve’s cautious stance. U.S. 10-year Treasury yields responded by hovering around 3.91%, indicating market expectations for persistent higher rates, which supported the U.S. dollar.

Events Ahead

Looking ahead, the Eurozone’s final Manufacturing PMIs, scheduled for September 2nd, are expected to highlight economic challenges. Forecasts show a contraction, particularly in Germany, at 42.1.

Weak manufacturing data could pressure the euro, especially if U.S. yields remain elevated, further boosting the dollar index, which recently hovered near 101.64. The dollar’s strength could continue, especially if the U.S. labour market remains resilient.

Traders should monitor these developments closely, as a stronger dollar and higher yields could lead to a further decline in EUR/USD, potentially pushing it below the 1.10 level.

US Dollar Index (DXY)

The Dollar Index (DXY) is trading at $101.644, showing a slight decline of 0.04%. The 4-hour chart’s index is above the pivot point at $101.494, which is crucial for maintaining its bullish momentum. Immediate resistance is seen at $101.805, with further targets at $102.026 and $102.270 if the upward movement continues.

The 50-day EMA at $101.334 provides near-term support, reinforcing the bullish outlook. However, if the index drops below the pivot point, it could trigger a more substantial decline toward immediate support at $101.315, followed by $101.081 and $100.897.

The current upward channel suggests that the bullish trend could persist as long as DXY remains above $101.494.

US 10-year Bond Yields

The U.S. 10-year Treasury yield is trading around 3.91%, after a recent spike above the key 3.90% level. This upward movement is significant because rising yields often indicate expectations of higher interest rates, which can strengthen the U.S. dollar.

The 10-year yield has broken above its 50-day Exponential Moving Average (EMA) at 3.85%, suggesting bullish momentum. If the yield continues to rise, it could push the U.S. dollar higher, making it more attractive for investors seeking better returns.

However, if yields pull back below 3.90%, we could see some weakening in the dollar as bond demand increases, pushing yields down.

EUR/USD Technical Forecast

The EUR/USD is trading at $1.10615. On the 4-hour chart, the currency pair hovers just below the pivot point at $1.10691. This level is critical; a break above it could pave the way for a bullish move toward the immediate resistance at $1.11011, with further targets at $1.11278 and $1.11599.

However, if EUR/USD fails to surpass $1.10691, it may face a downturn toward immediate support at $1.10388, with additional support levels at $1.10112 and $1.09854.

The 50-day EMA is currently at $1.10941, reinforcing potential resistance, while the 200-day EMA, at $1.10612, serves as key support.