USD Sentiment Wavers as Bond Yields Stall—What’s Next for the Dollar?

Market Overview

On August 22, the USD saw mixed data releases. Unemployment claims held steady at 232K, matching forecasts but slightly up from the previous week’s 228K.

The Flash Manufacturing PMI dropped to 48.0, below expectations of 49.5, signalling a contraction in the sector.

Meanwhile, the Flash Services PMI rose to 55.2, surpassing the expected 54.0, indicating robust service sector activity. Existing Home Sales also slightly exceeded forecasts, coming in at 3.95M.

Events Ahead

Looking ahead to August 23, all eyes are on Fed Chair Powell’s speech at the Jackson Hole Symposium, which could provide key insights into future monetary policy. Markets are also watching New Home Sales data, which is expected to rise to 624K, which could impact the USD.

Bank of England Governor Andrew Bailey’s speech in the UK will be pivotal for the GBP, especially as the GBP/USD pair remains sensitive to any monetary policy hints.

The Dollar Index (DXY) may see volatility depending on Powell’s remarks and other economic indicators.

US Dollar Index (DXY)

The Dollar Index (DXY) currently trades at $101.381, facing strong resistance at $101.62. The presence of a double-top pattern around this resistance zone suggests limited upside potential. Additionally, the 50-day EMA, positioned at $101.61, further strengthens this resistance barrier.

On the downside, immediate support is found at $100.91, with additional levels at $100.62 and $100.36. The pivot point at $101.26 will be crucial in determining the next directional move, while the 200-day EMA at $102.61 serves as a significant overhead resistance.

The outlook remains bearish below $101.50, with a potential for further downside. However, a break above this level could shift momentum toward a more bullish stance.

US10 Year Bond Yields

Currently, the US 10-Year Yield is around 3.84%, showing some resistance at higher levels. This is important because bond yields and the US dollar often move together.

Higher yields can strengthen the US dollar by attracting foreign investment, as investors seek better returns. Conversely, if yields drop, the dollar might weaken, as lower returns make US assets less attractive.

What’s happening now? The yields are facing resistance and not climbing much higher, suggesting that investors are cautious. They’re watching economic indicators and Federal Reserve signals closely, trying to gauge whether rates will stay high or if there could be a shift that might push yields—and the dollar—downward.

EUR/USD Technical Forecast

The EUR/USD pair is currently trading at $1.1122, reflecting modest gains and reinforcing its bullish momentum. The pivot point at $1.1099 is a crucial support level, further strengthened by the 50-day EMA at $1.1103. The continuation of the upward channel signals a strong buying trend as long as the pair remains above $1.1099.

Immediate resistance is seen at $1.1164, with further targets at $1.1191 and $1.1222. On the downside, key support levels to monitor are $1.1071, $1.1038, and $1.1004.

The outlook stays bullish above $1.1099, but a decisive break below this level could trigger a sharp downturn, leading to significant selling pressure. Watch for a potential breakout above $1.1165 to confirm further upward movement.