US Dollar on Breakdown Watch

US DOLLAR FORECAST – EUR/USD, USD/JPY, GBP/USD, AUD/USD

• The U.S. dollar’s bearish correction may have room to run further in the coming days and weeks
• Falling U.S. treasury yields will act as a headwind for the American currency
• This article explores the technical outlook for EUR/USD, USD/JPY, GBP/USD and AUD/USD, analyzing price action dynamics and the key levels that FX traders should have on their radar

Most Read: US Dollar Outlook Shaky as Yields Tank – Setups on EUR/USD, GBP/USD, AUD/USD

The U.S. dollar, as measured by the DXY index, has retreated nearly 2.75% in November. Losses gained impetus and accelerated over the past several trading sessions in the wake of lower-than-forecast U.S. inflation figures and disappointing initial jobless claims, pushing the broader greenback towards its lowest level since early September.

Weakening price pressures, coupled with slowing labor markets, has all but eliminated the likelihood of further FOMC tightening, debilitating the argument in favor of maintaining higher interest rates for longer. Against this backdrop, Treasury yields have fallen sharply this month, with the 10-year note trading around 4.45% versus 4.95% at the end of October.

The downward trajectory of bond yields is not likely to end soon. With business activity poised to cool further as the impact of past Fed hikes continues to ripple through the real economy, and oil prices at multi-month lows, inflation should fall faster than projected, exerting pressure on the Treasury curve. This, in turn, should weigh on the U.S. currency going forward.

To be more confident about the bearish outlook for the U.S. dollar, incoming information will have to confirm that growth is floundering, and more disinflation is in the pipeline. There are no major releases next week, though the October durable goods report could attract some attention. Feeble numbers would spell trouble for the greenback, while strong results would have the opposite effect.

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US UPCOMING ECONOMIC RELEASES

Source: DailyFX Economic Calendar

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EUR/USD FORECAST – TECHNICAL ANALYSIS

EUR/USD pushed higher heading into the weekend, clearing resistance around the 1.0900 handle. If this breakout holds in the coming trading sessions, prices are likely to trek upwards, setting the stage for a move towards 1.0960, the 61.8% Fibonacci retracement of the July/October downward correction. On further strength, the focus shifts to the 1.1070 region.

On the flip side, if market control shifts to sellers and the pair takes a turn to the downside, support levels emerge at 1.0900, then 1.0840, and subsequently at 1.0765. A clear violation of these technical thresholds could accelerate bearish impetus, setting the stage for a decline towards 1.0650. Sustained weakness would heighten the risk of revisiting the trendline support at 1.0575.

EUR/USD TECHNICAL CHART

EUR/USD Chart Created Using TradingView

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USD/JPY TECHNICAL ANALYSIS

USD/JPY sold off Friday and dropped towards its 50-day simple moving average, presently slightly above the 149.00 mark. If prices slip beneath this area of high technical importance in the coming days, losses could gather pace, opening the door for a pullback toward 147.25. Below this floor, the next potential support lies at the 100-day simple moving average.

On the other hand, if USD/JPY resumes its advance, overhead resistance is positioned at 150.90, followed by 152.00. Tokyo might step in to support the yen if this ceiling were to be threatened; however, in the absence of FX intervention, prices could climb towards 152.65 on a breakout. Further upward movement might result in a rally towards 153.50 – the upper boundary of a medium-term ascending channel.

USD/JPY TECHNICAL CHART

USD/JPY Chart Created Using TradingView

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GBP/USD FORECAST – TECHNICAL ANALYSIS

GBP/USD rose on Friday, climbing past the 200-day simple moving average and Fibonacci resistance at 1.2461. If cable manages to consolidate higher in the coming week, the 100-day SMA will act as the first line of defense against further advances; however, a breach above this ceiling might propel prices towards 1.2590, which represents the 50% Fib retracement of the July/October decline.

Conversely, should sellers regain the upper hand in FX markets and drive the exchange rate under the 200-day SMA decisively, the pair could trickle down toward the 1.2320 mark. GBP/USD might bottom out in this region before attempting a turnaround; however, a breakdown scenario could send prices reeling toward the 50-day SMA and 1.2200 thereafter.

GBP/USD TECHNICAL CHART

GBP/USD Chart Created Using TradingView

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AUD/USD FORECAST – TECHNICAL ANALYSIS

After a subdued performance on Thursday, AUD/USD rallied heading into the weekend, blasting past the 100-day simple moving average and pushing towards overhead resistance located near 0.6525. With bullish impetus on its side and sentiment on the mend, the pair could break out to the topside in the coming trading sessions, setting the stage for a possible rally toward the 0.6600 handle.

In the event of sellers returning and driving prices below the 100-SMA, we could see a retracement towards 0.6460. It is of utmost importance for the bulls to robustly defend this floor; any failure to do so could revive downward pressure, potentially causing a decline toward 0.6395. On further weakness, a retest of the 0.6350 area could materialize.

AUD/USD TECHNICAL CHART

AUD/USD Chart Created Using TradingView