Surviving the Final Days of 2023: Expert Setups for EUR/USD, USD/JPY, and GBP/USD as the US Dollar Teeters on Thin Ice
US DOLLAR FORECAST – EUR/USD, USD/JPY, GBP/USD
- The U.S. dollar sinks to its lowest level since July, with the DXY index closing the week at 101.70
- No major events are expected in the week ahead, but that does not mean that volatility will be low, as thin liquidity conditions could amplify market moves
- This article zooms in on the technical outlook for EUR/USD, USD/JPY, and GBP/USD, analyzing essential price thresholds to monitor in the final trading sessions of 2023
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The U.S. dollar, as measured by the DXY index, dropped for the second consecutive week, closing at its lowest level since late July (101.70) in a low-volume environment ahead of the Christmas festivities and the final trading days of 2023.
Taking recent losses into account, the DXY index has fallen by about 4.21% in the fourth quarter and by roughly 1.75% in December, pressured by the significant pullback in government bond yields, which have corrected sharply lower from their cycle’s highs established in late October.
The Fed’s pivot has reinforced ongoing market trends, exacerbating the downward shift in the Treasury curve and the greenback’s retreat. To elaborate, the FOMC adopted a dovish position at its last meeting, admitting that it had begun talks of rate cuts and signaling 75 basis points of easing in 2024.
The following chart shows the magnitude of the shift in the Treasury curve over the last two months or so.
US TREASURY CURVE DOWNWARD SHIFT
Source: TradingView
Looking ahead to the last week of 2023, there are no impactful releases on the calendar that might substantially alter current trends. This could result in the consolidation of recent moves, namely the weakening of the U.S. dollar and falling yields. Nevertheless, the absence of high-impact events on the calendar doesn’t guarantee low volatility and steady markets.
Reduced liquidity conditions, characteristic of the holiday period, can sometimes amplify price swings, as seemingly routine or moderate-sized trades can upset the delicate balance between supply and demand, with few traders on their desks to absorb buy and sell orders. Therefore, caution is strongly advised.
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EUR/USD TECHNICAL ANALYSIS
Following recent gains, the EUR/USD now confronts a pivotal resistance zone between 1.1000 and 1.1025. If this ceiling is taken out decisively in the coming days, we could see a rally towards 1.1085. On further strength, the focus shifts to 1.1140, which corresponds to the upper limit of a rising channel in play since September.
On the flip side, if buyers’ efforts to drive prices higher fail and ultimately result in a downturn off current levels, initial support becomes visible at 1.0830, near the 200-day simple moving average. The pair is likely to bottom out in this area before resuming its advance, but in the event of a breakdown, a slump towards 1.0770 could be in the cards.
EUR/USD TECHNICAL CHART
EUR/USD Chart Created Using TradingView
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USD/JPY TECHNICAL ANALYSIS
USD/JPY ticked up on Friday but failed to reclaim its 200-day simple moving average. If the pair remains below this indicator in the coming days, selling pressure could start building momentum, setting the stage for an eventual decline towards the December lows at 140.95. This floor must be protected at all costs; failure to do so could spark a retracement towards trendline support at 139.50.
Conversely, if buyers regain the upper hand and propel USD/JPY above its 200-day SMA, resistance appears at 144.80. Surmounting this obstacle will prove challenging for the bullish camp, but a successful breakout could create the right conditions for an ascent toward the 146.00 handle. A continued display of strength could embolden the bulls to aim for 147.20.
USD/JPY TECHNICAL CHART
USD/JPY Chart Created Using TradingView
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| Change in | Longs | Shorts | OI |
| Daily | 0% | 0% | 0% |
| Weekly | -10% | 4% | -3% |
GBP/USD TECHNICAL ANALYSIS
GBP/USD inched up heading into the weekend but hit a roadblock at cluster resistance stretching from 1.2727 to1.2769, where a crucial Fibonacci level converges with a downtrend line extended from the 2023 peak. Reinforcing bullish momentum requires clearing this technical hurdle; with a successful breakout likely paving the way for a move towards 1.2800, followed by 1.3000.
On the other hand, if sellers stage a comeback and initiate a bearish reversal, trendline support is located around the 1.2600 area. This dynamic floor may offer stability during a pullback, but a push below it could usher in a retest of the 200-day simple moving average hovering slightly above the 1.2500 handle. Further weakness could redirect attention to 1.2455.
GBP/USD TECHNICAL CHART
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Surviving the Final Days of 2023: Expert Setups for EUR/USD, USD/JPY, and GBP/USD as the US Dollar Teeters on Thin Ice
The year 2023 has been a tumultuous one for the US dollar. In the midst of an ongoing global pandemic and economic uncertainty, the US dollar has been facing intense pressure, causing fluctuations in major currency pairs such as EUR/USD, USD/JPY, and GBP/USD. As we near the end of the year, the question on every trader’s mind is, how can we navigate these final days of 2023 and make the most of the current market conditions? In this article, we will explore expert setups for these three major currency pairs, and provide valuable insights on how to survive and thrive in the final days of 2023.
1. EUR/USD: Preparing for a Potential Bullish Run
The EUR/USD currency pair has been a rollercoaster ride this year, with the euro gaining strength against the US dollar in the first quarter, only to face a reversal in the second quarter. However, as we move into the final days of 2023, there are signs that point towards a potential bullish run for the euro.
One of the key factors to consider is the economic recovery in the Eurozone. As the continent begins to bounce back from the pandemic-induced downturn, we can expect increased demand for the euro, which may push the currency pair higher. In addition, the European Central Bank’s (ECB) decision to scale back its bond-buying program is another positive indication for the euro. Traders should keep a close eye on any further developments from the ECB as it could impact the EUR/USD exchange rate.
2. USD/JPY: Riding the Waves of Economic Uncertainty
2023 has been a year of uncertainty for the Japanese economy, resulting in significant volatility for the USD/JPY currency pair. The recent resignation of Japanese Prime Minister Yoshihide Suga, coupled with the ongoing COVID-19 crisis, has added to the economic turmoil in the country. With the Bank of Japan (BOJ) maintaining its ultra-loose monetary policies, the USD/JPY pair could continue to face ups and downs in the final days of the year.
In times of uncertainty, traders often turn to safe-haven currencies like the Japanese yen. However, the key to navigating USD/JPY in the final days of 2023 is to closely monitor any economic and political developments in Japan, along with the US dollar’s performance. Any positive news from Japan could result in a weakening of the greenback, and therefore, a potential rise in the USD/JPY exchange rate.
3. GBP/USD: The Impact of Brexit and Inflation
The highly-anticipated UK-EU trade deal and a rise in UK inflation rates have made the GBP/USD currency pair one to watch in the final days of 2023. With the UK’s departure from the EU in full effect, the long-term impact of Brexit on the pound and its value against the US dollar remains to be seen. While the trade deal has brought some stability to the currency pair, any new developments on the political front could cause significant fluctuations.
In addition, rising inflation rates in the UK could also play a role in the GBP/USD exchange rate. Inflation can erode the value of a currency, and with the Bank of England predicting that inflation rates will remain above their target for the rest of the year, traders should closely monitor the impact on the GBP/USD pair.
Expert Tips for Surviving the Final Days of 2023
Now that we have looked at the expert setups for the three major currency pairs, let’s explore some additional tips to help you navigate the uncertain market landscape in the final days of 2023.
– Keep an eye on economic and geopolitical developments: As we have seen with the examples above, economic and geopolitical factors can have a significant impact on currency pairs. Stay informed and closely monitor any news or announcements that could potentially impact the market.
– Diversify your portfolio: It is always wise to have a diversified portfolio, especially in times of market uncertainty. Consider investing in multiple currency pairs to mitigate risks and take advantage of potential opportunities.
– Use technical analysis: Technical indicators and chart patterns can provide valuable insights into market trends and potential price movements. Use them to identify potential entry and exit points for your trades.
– Practice risk management: With market volatility at an all-time high, it is crucial to have a risk management strategy in place. This can include setting stop-loss orders and limiting your exposure to any one currency pair.
Final Thoughts
In conclusion, the final days of 2023 are likely to be a challenging time for traders as the US dollar continues to teeter on thin ice. However, with the right strategies and insights, it is possible to navigate the market and potentially profit from the fluctuations in currency pairs like EUR/USD, USD/JPY, and GBP/USD. Stay informed, diversify your portfolio, and always practice risk management to increase your chances of success in the ever-changing forex market.
