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Navigating Risky Waters: Technical Setups for EUR/USD, GBP/USD, and Gold Amidst the US Dollar’s Uncertainty

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US DOLLAR FORECAST – EUR/USD, GBP/USD, GOLD PRICES

  • The U.S. dollar weakens, approaching its lowest level since late July
  • Few market catalysts on sight for the remainder of the week
  • This article examines the technical outlook for EUR/USD, GBP/USD, and gold, analyzing important price levels that could act as support or resistance in the last week of 2023.

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Most Read: US Dollar on Thin Ice, Setups on EUR/USD, USD/JPY, GBP/USD for Final Days of 2023

The U.S. dollar, as measured by the DXY index, retreated on Tuesday and flirted with its lowest levels since late July near 101.55 in a trading session characterized by thin liquidity, with many financial centers still closed for the Christmas holidays and ahead of the New Year’s festivities.

Factoring in recent losses, the DXY index is down about 4.35% in the fourth quarter and about 1.9% in December. This drop is associated with the significant pullback in government bond yields, which have plummeted from the cycle high marked about two months ago.

The Fed’s pivot at its December FOMC meeting has reinforced ongoing market trends over the past couple of weeks. For context, the central bank embraced a dovish posture at its last gathering, signaling that it would deliver 75 basis points of easing in 2024, possibly as part of a strategy to prioritize growth over inflation.

With U.S. yields displaying a downward bias and a strong risk-on sentiment prevailing in equity markets, the U.S. dollar is likely to extend its decline in the short term. This could potentially lead to increased gains for gold, EUR/USD, and GBP/USD moving into the new year.

Focusing on important catalysts later this week, there are no major releases of note – a scenario that could create the right setting for a period of consolidation. Nevertheless, the dearth of impactful events doesn’t guarantee subdued volatility or steady market conditions.

The reduced liquidity, characteristic of this time of year, can sometimes amplify price swings, as seemingly routine or moderate-sized transactions have the potential to upset the delicate balance between supply and demand. Caution is therefore strongly advised.

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EUR/USD TECHNICAL ANALYSIS

After its recent climb, EUR/USD has pushed above overhead resistance stretching from 1.1000 to 1.1025. A sustained breakout in weekly closing prices might pave the way for a rapid advancement towards the 1.1100 handle. Further gains could draw attention to 1.1140, which corresponds to the upper boundary of a short-term bullish channel.

Conversely, if upside impetus fades and leads to a pullback below 1.1000, initial support rests at 1.0935, followed by 1.0830, near the 200-day simple moving average. The pair is likely to bottom out in this region before resuming its upward trajectory, but a move below this technical area could precipitate a decline toward 1.0770.

EUR/USD TECHNICAL CHART

EUR/USD Chart Created Using TradingView

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GBP/USD TECHNICAL ANALYSIS

GBP/USD saw a modest uptick on Tuesday, but encountered resistance in the 1.2727/1.2769 zone, where a key Fibonacci level aligns with a downtrend line in play since July. To strengthen the bullish trend, overcoming this technical barrier is crucial; with a successful breakout opening the door for a move towards 1.2800, followed by 1.3000.

Alternatively, if sellers mount a comeback and trigger a bearish reversal, trendline support near 1.2600 will be the first line of defense against a pullback. This dynamic floor may provide stability in the event of a retreat, but a breakdown could send cable reeling towards its 200-day simple moving average hovering above 1.2500. Further weakness could shift focus towards 1.2455.

GBP/USD TECHNICAL CHART

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GBP/USD Chart Created Using TradingView

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GOLD PRICE TECHNICAL ANALYSIS

Gold extended its advance and consolidated above $2,050 on Tuesday but fell short of breaching a key technical barrier in the $2,070-$2,075 range. If history is a guide, prices could be rejected from this region; however, a decisive breakout could bolster bullish sentiment, potentially ushering in a strong rally toward the all-time high near $2,150.

In contrast, If the bears regain control of the market and push XAU/USD lower and beneath $2,050, we could see a retracement towards $2,010. Maintaining this last floor is paramount for the bulls; a failure to do so might rejuvenate downward momentum, possibly leading to a decline towards $1,990. Below this, attention may turn to $1,975.

GOLD PRICE TECHNICAL CHART

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Gold Price Chart Created Using TradingView

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As the world continues to grapple with the ongoing COVID-19 pandemic, it’s no surprise that the global economy has taken a hit. The US dollar, which has long been considered the strongest and most stable currency in the world, has faced its fair share of uncertainty. This has caused significant fluctuations in the foreign exchange markets, making it challenging for traders and investors to navigate through risky waters.

In this article, we will take a closer look at the technical setups for EUR/USD, GBP/USD, and Gold amidst the US dollar’s uncertainty, and provide practical tips and insights for traders and investors to make informed decisions in these turbulent times.

EUR/USD Technical Setup:

The Euro, which is the second most-traded currency in the world, has been facing a series of headwinds, including the ongoing political and economic instability in the European Union, as well as the resurgence of COVID-19 cases in several member countries. All of these factors have contributed to the weakening of the Euro against the US dollar.

However, in recent months, the EUR/USD pair has shown signs of a potential rebound. This can be attributed to the US Federal Reserve’s aggressive monetary policy, which has led to a weakening of the US dollar. Additionally, the European Union’s massive stimulus packages have provided support to the Euro.

From a technical standpoint, the EUR/USD has been trading in a steady uptrend, forming higher highs and higher lows. It has also broken above the 1.20 resistance level, indicating a potentially bullish trend. Traders should keep an eye on the 1.19 support level, as a break below this could signal a reversal in the trend.

GBP/USD Technical Setup:

Similar to the Euro, the British Pound has been facing its own set of challenges, mainly due to the uncertainty surrounding the Brexit deal. The deadline for the UK to reach a trade agreement with the European Union is fast approaching, and failure to do so could spell trouble for the Pound.

In addition to the Brexit concerns, the GBP/USD pair has also been affected by the global economic slowdown and the weakening of the US dollar. This has caused the currency pair to trade in a volatile range, with no clear direction.

However, with the US dollar’s uncertainty and the positive developments on the Brexit front, the GBP/USD pair has the potential to break out of its range and move towards the 1.35 resistance level. Traders should closely monitor any developments on the Brexit negotiations and keep an eye on the 1.30 support level.

Gold Technical Setup:

As an alternative safe-haven asset, Gold has been performing exceptionally well amidst the US dollar’s uncertainty. The precious metal has witnessed an impressive rally, reaching record highs of over $2,000 per ounce in August 2020. This can be attributed to the economic uncertainties caused by the pandemic, as well as the unprecedented levels of monetary stimulus by central banks worldwide.

From a technical standpoint, Gold has been trading in a steady uptrend, forming higher highs and higher lows. It has also broken above the psychological level of $1,800, indicating a potentially bullish trend. Traders should keep an eye on the $1,900 resistance level, which will serve as a major hurdle for further upward movement.

Practical Tips for Traders and Investors:

Now that we have assessed the technical setups for EUR/USD, GBP/USD, and Gold, here are a few practical tips for traders and investors to navigate through the risky waters amidst the US dollar’s uncertainty:

1. Stay up to date with global economic and political developments: In times of uncertainty, it’s essential to stay informed about any economic and political developments that could impact the markets and currency pairs you are trading.

2. Keep an eye on the US dollar’s performance: As the world’s leading currency, the US dollar’s performance can greatly influence the forex markets. Pay close attention to any monetary policy decisions and economic data releases from the US Federal Reserve.

3. Diversify your portfolio: In times of uncertainty, it’s always advisable to diversify your portfolio to mitigate risks. Consider adding safe-haven assets like Gold and Japanese Yen to your portfolio.

4. Set stop-losses: With increased volatility in the markets, it’s crucial to set stop-losses to limit potential losses in case of unexpected market movements.

Case Study:

One example of successfully navigating risky waters during the US dollar’s uncertainty is George Soros, who reportedly made a billion-dollar profit by shorting the British Pound during the 1992 UK currency crisis. Soros anticipated the Pound’s downfall and placed a massive short position, making a hefty profit when the Pound crashed.

First-hand Experience:

As a seasoned forex trader, I have personally experienced the challenges of navigating through risky waters amidst the US dollar’s uncertainty. It’s crucial to remain calm, analyze the markets thoroughly, and make informed decisions based on technical and fundamental factors.

Conclusion:

In conclusion, the US dollar’s uncertainty has created a challenging trading environment for forex traders and investors. However, by closely monitoring global economic and political developments, staying informed, and making well-informed decisions based on technical and fundamental factors, traders and investors can successfully navigate through these risky waters. As always, it’s essential to remember to diversify your portfolio, set stop-losses, and remain disciplined in your trading strategies.

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