This article covers news and analysis on the US Dollar (DXY), specifically how positive manufacturing data has contributed to lifting the previously struggling currency. Technical considerations regarding DXY are also discussed, including the bounce at the support that provides support for developing pullback. Chart patterns and key support and resistance levels are utilized in the analysis. Additional information can be found in our extensive education library.
At the beginning of the week, the DXY index indicated a strong performance by the U.S. dollar. This was attributed to market volatility and an increase in U.S. Treasury yields. The Federal Reserve’s monetary policy expectations for the latter half of the year have become less accommodating compared to previous weeks, coinciding with sustained economic growth.
FED FUNDS FUTURES & US TREASURY YIELDS
Against the current economic situation, the USD/JPY currency pair experienced a rally of over 0.5%, surpassing 134.50 and achieving its highest level since March 15th. Additionally, the USD/CAD currency pair advanced for two consecutive days, increasing by approximately 0.3% and approaching its 200-day simple moving average located near 1.3400.
After the foreign exchange market activity on Monday, significant thresholds were reached by both currency pairs, which warrant close monitoring in the near future. Those who wish to examine recent pricing trends and graphical representations may consult the technical analysis of USD/JPY and USD/CAD provided below.
USD/JPY TECHNICAL ANALYSIS
Earlier this month, USD/JPY experienced a rebound from a cluster support level at approximately 130.50. This resulted in an increase in momentum that has continued in recent days, leading to the decisive breach of both the 50-day simple moving average and trendline resistance at the beginning of this week.
The USD/JPY has been rising steadily after the most recent breakout and is now nearing a significant technical resistance level at 134.75 which coincides with the high from January. If this resistance level is surpassed, there may be a surge in buying interest that could trigger a rally towards 136.60, which corresponds to the 38.2% Fibonacci retracement of the decline from October 2022 to January 2023.
In contrast, in the event that vendors re-enter the market and exert downward pressure on prices from their present levels, the pair’s first line of support can be found at 133.75/133.65. Should the pair successfully breach this support level, bearish traders may gain confidence to mount an offensive towards 131.50, a critical level of support that is delineated by an upwardly trending line since February 2022.
USD/JPY TECHNICAL CHART
USD/CAD TECHNICAL ANALYSIS:
Over the last five weeks, USD/CAD experienced a significant decline but has recently shown a slight recovery after receiving support from trendline around 1.3300. If this rebound stabilizes in the short term, further gains may be limited by resistance at the 200-day simple moving average of 1.3400. However, if this level is surpassed, it is possible that the exchange rate may rise to 1.3465.
In the event that sellers take charge of the market and control price action, the first level of support to keep an eye on is 1.3300. If this level is breached, the next area of potential interest for sellers can be found at 1.3225/1.3210, close to the November 2022 swing lows. Although USD/CAD has a bearish outlook in the short term, market sentiment may change if there is an increase in volatility and worsening sentiment, as the U.S. dollar has traditionally served as a safe haven during periods of heightened uncertainty and turbulence.