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Most Read: US Dollar Forecast: Reversal Possible; Setups on EUR/USD, USD/JPY, GBP/USD
The U.S. dollar strengthened against its top peers on Tuesday, supported by higher U.S. Treasury yields, as markets tempered bets for a March interest rate cut, with odds of the event falling below 59% from 77% just one day ago.
The move was reinforced after Fed Governor Christopher Waller said the FOMC does not need to ease its stance as quickly as in the past, a sign that policymakers intend to proceed with caution. Against this backdrop, the euro, British pound and Australian dollar fell sharply against the greenback, breaking important thresholds during the pullback.
FED MARCH MEETING PROBABILITIES
Source: CME Group
In this article, we focus on the technical outlook for EUR/USD, GBP/USD and AUD/USD, analyzing market sentiment and price action dynamics.
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EUR/USD TECHNICAL ANALYSIS
EUR/USD sank on Tuesday, breaching the lower boundary of a short-term rising channel at 1.0930 and moving towards the 200-day simple moving average positioned just above 1.0840, which represents the next crucial support to monitor. It is imperative for this area to be maintained; failure to do so may result in a retracement towards 1.0770.
On the contrary, if the downward pressure begins to ease and prices rebound in the upcoming trading sessions, technical resistance looms at 1.0930, followed by 1.1020. Should market strength persist, attention could shift towards 1.1075/1.1095, and subsequently, 1.1140.
EUR/USD TECHNICAL CHART
EUR/USD Chart Prepared Using TradingView
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| Change in | Longs | Shorts | OI |
| Daily | 16% | -20% | -3% |
| Weekly | 10% | -15% | -2% |
GBP/USD TECHNICAL ANALYSIS
GBP/USD also took a sharp turn to the downside on Tuesday, breaking through channel support and descending towards the 50-day simple moving average located around the 1.2600 level. Cable is likely to establish a base in this region before rebounding, but a breakdown could expose the 200-day simple moving average.
On the flip side, if buyers resurface and spark a bullish reversal, initial resistance lies at 1.2675, followed by 1.2780. Sellers must resolutely protect this technical ceiling; any failure to do so might trigger an upward movement towards the December peak situated above the 1.2800 handle.
GBP/USD TECHNICAL CHART
GBP/USD Chart Prepared Using TradingView
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AUD/USD TECHNICAL ANALYSIS
AUD/USD has slumped in recent weeks, with prices currently sitting above cluster support near 0.6570, where the 200-day SMA aligns with a long-term trendline and the 50% Fib retracement of the Oct-Dec rally. Maintaining this area is crucial; any inability to do so could trigger a descent towards 0.6525, followed by 0.6500. On further weakness, all eyes will be on 0.6460.
On the other hand, if buyers stage a comeback and propel the exchange rate higher, resistance appears at 0.6635 and 0.6685 thereafter. The bulls will have a hard time pushing prices above this barrier, but a successful breakout could pave the way for a rally toward 0.6825.
AUD/USD TECHNICAL CHART
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The global economy has once again been shaken due to the recent surge in COVID-19 cases, causing a significant downturn in the market mood and sending major currencies tumbling. The US dollar, however, has been the clear winner in this scenario, regaining its dominance against the euro, pound, and Australian dollar. This shift in currency value has significant implications for businesses, investors, and the general public. In this article, we will delve into the factors behind this shift and its impact on the global economy.
US Dollar Regains Dominance
The US dollar, also known as the greenback, is often seen as a safe haven currency during uncertain times. As the world’s largest economy, the US dollar is closely tied to global economic trends, making it a preferred currency for investors during times of market volatility. As a result, when the stock market plummets and risk appetite decreases, investors tend to flock to the US dollar, pushing its value higher.
EUR/USD, GBP/USD, and AUD/USD Plummet
The euro, pound, and Australian dollar have been hit hard by the ongoing COVID-19 crisis, with each currency experiencing significant drops in value against the US dollar. The euro, which had been on an upward trend earlier in the year, has plummeted by more than 3% in recent weeks, falling to its lowest level since April. The British pound, likewise, has lost over 3.5% against the US dollar, reaching its weakest point in over a month. The Australian dollar, which is heavily reliant on commodity prices, has also seen a sharp decline of over 4%, as global demand for commodities dwindles.
Dismal Market Mood Contributes to Currency Volatility
The recent surge in COVID-19 cases has dealt a heavy blow to the global economy, leading to a significant decline in market mood. The uncertainty surrounding the pandemic, combined with renewed lockdowns and travel restrictions, has caused investors to shift their focus to safe-haven currencies like the US dollar. The constant fear of a second wave has also led to a decline in consumer and business confidence, which in turn puts a strain on the euro, pound, and Australian dollar.
Implications for Businesses, Investors, and Individuals
The shift in currency values has far-reaching implications for businesses, investors, and individuals alike. Businesses that engage in cross-border trade may see a significant impact on their profit margins as the US dollar becomes stronger against other currencies. This could also lead to an increase in the cost of imported goods and materials, which could have a ripple effect on businesses and the overall economy.
Investors who have assets tied to the euro, pound, or Australian dollar may see a decline in their portfolio value as these currencies continue to fall against the US dollar. This can be particularly worrisome for those who have invested in European, British, or Australian stocks or bonds. On the other hand, investors with assets tied to the US dollar may see an increase in their portfolio value.
For individuals, the shift in currency values can also have an impact on their purchasing power. Travelers intending to visit Europe, the UK, or Australia may find that their money doesn’t go as far as it used to due to the weakening of these currencies. Similarly, those who rely on income from foreign sources may see a dip in their earnings as the US dollar strengthens against other currencies.
Benefits and Practical Tips
While the current market situation may seem bleak, there are some potential benefits to the US dollar’s dominance. For one, it can provide stability for businesses and investors in an uncertain economic climate. It could also make imported goods and materials more affordable for US-based businesses and consumers. However, it is essential to keep an eye on currency fluctuations and make informed decisions when it comes to international transactions and investments.
Experts suggest that diversifying investments and currency exposure can help mitigate risk and minimize the impact of currency fluctuations. It is also crucial to stay updated on the latest market developments and keep a close eye on the US dollar’s movements against other major currencies.
Case Studies and First-hand Experience
The current market situation serves as a reminder of the volatility of the global economy. During such times, it is crucial to evaluate and adjust investment strategies accordingly. A recent example of this is investment management firm Alliance Bernstein, which shifted its investment strategy in early September to favor the US dollar over other currencies. The move paid off, with the firm reporting a 2.7% gain in their currency-hedged portfolio compared to a 5.3% loss for their non-currency-hedged investments.
In a similar case, Jessica, a freelance graphic designer, experienced a decline in her income when she received a payment from a European client in euros. Due to the weakening of the euro, she ended up with less money than expected, which had a significant impact on her monthly budget.
In Conclusion
The US dollar’s resurgence as the dominant currency in the current market mood has significant implications for businesses, investors, and individuals. While the situation may appear bleak, there are potential benefits and steps that can be taken to minimize the impact. It is essential to stay informed and adapt to the ever-shifting economic landscape to make the best decisions for our businesses and investments.
