The US dollar’s rally appears to be losing momentum against some of its counterparts as the highly anticipated Jackson Hole Economic Symposium approaches. The three-day meeting of central bankers, set to begin on Thursday, will feature a speech by US Federal Reserve Chair Jerome Powell on Friday. Market participants are eagerly awaiting his updated economic assessment.
Recent data, including above-expected industrial production, retail sales, and solid housing starts, have raised the odds of inflation ticking higher in July. This suggests the potential need for additional tightening measures. However, Powell may adopt a data-dependent approach instead of making any firm commitments. There is speculation that a balanced assessment from Powell could lead to a reduction in long positions in the US dollar, particularly as speculative USD positioning has recently shifted to being mildly long from shorts.
From a technical standpoint, the US dollar’s global rally appears to be facing resistance. The DXY Index is currently testing a tough ceiling at the 200-day moving average and a downtrend line from early 2023. The rally from last month is seen as corrective, and for a reversal in the broader bearish picture, the index would need to surpass the early-2023 highs of 105.50-106.00.
In the EUR/USD pair, there is a significant converged floor that could potentially limit downside movements. This includes the 89-day moving average, the 200-day moving average, and the lower edge of the Ichimoku cloud on the daily chart. To ease the broader bullish trend, the pair would need to breach the 2023 lows of around 1.0500. On the upside, a strong resistance level is observed at the August 10 high of 1.1065. A break above this resistance would alleviate the downside risks.
GBP/USD is currently holding above a strong level of converged support around 1.2600, which includes the 89-day moving average, the lower edge of the Ichimoku cloud, and the end-June low. Even if this floor breaks, there is further support at the 200-day moving average and the May low of 1.2300. Only a fall below this level would increase the risk of a more prolonged consolidation in the broader rally. On the upside, GBP/USD needs to surpass the August 10 high of 1.2820 to alleviate the immediate downward pressure. Looking ahead, the overall bias remains upward, with the potential to rise towards 1.4200 in the months to come.
Meanwhile, USD/JPY appears overbought as it tests a crucial barrier around 145.00-145.10, which includes the June high and the end-October 2022 low. The 14-day Relative Strength Index is showing signs of rolling over from the overbought territory. Previous instances of such rollovers have been associated with a retreat in USD/JPY. However, for a meaningful retreat to occur, the pair would need to break below immediate support at the mid-August low of 145.00. Such a break would serve as a warning sign for the five-week uptrend.
In conclusion, the US dollar’s rally seems to be losing steam ahead of the Jackson Hole Symposium, where markets are anticipating an updated economic assessment from Federal Reserve Chair Jerome Powell. Technical charts also suggest resistance for the US dollar, with key levels to watch in major currency pairs such as EUR/USD, GBP/USD, and USD/JPY. Traders and investors will closely monitor Powell’s speech and assess its implications for the future direction of the US dollar.
