US Dollar's Path Tied To Inflation Outlook Setups On EUR/USD, USD/JPY, GBP/USD

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• EUR/USD FORECAST - TECHNICAL ANALYSIS
• USD/JPY FORECAST - TECHNICAL ANALYSIS
• GBP/USD FORECAST - TECHNICAL ANALYSIS

Most Read: US Dollar Gains Ahead of US CPI Data; Setups on EUR/USD, USD/JPY, GBP/USD

After a subdued performance earlier this month, the U.S. dollar (DXY index) advanced this past week, climbing roughly 0.23% to 105.31. This resurgence was buoyed by a slight uptick in U.S. Treasury yields and a prevailing sense of caution among traders as they await the release of April's U.S. consumer price index (CPI) figures, scheduled for this Wednesday.

The greenback could build upon its recent rebound if the pattern of consistently hotter-than-expected and sticky inflation readings observed this year repeats itself in next week's fresh cost of living data from the Bureau of Labor Statistics.

Consensus forecasts indicate that both headline and core CPI registered a 0.3% uptick on a seasonally adjusted basis last month, resulting in the annual readings shifting from 3.5% to 3.4% for the former and from 3.8% to 3.7% for the latter-a modest yet encouraging step in the right direction.

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US dollar shorts, aiming to thwart the currency's comeback, need to see an in-line or preferably softer-than-anticipated CPI report to launch the next bearish assault. Weak CPI figures could rekindle hopes of disinflation, bolstering bets that the Fed's first rate cut of the cycle would come in September, which traders currently give a 48.6% chance of occurring.

Source: CME Group

In the event of another upside surprise in the data, we could see yields rise across the board on the assumption that the Fed could delay the start of its easing campaign until much later in the year or 2025. Higher interest rates for longer in the U.S., just as other central banks prepare to start cutting them, should be a tailwind for the U.S. dollar in the near term.

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EUR /USD rose modestly this past week, but so far has been unable to break above its 50-day and 200-day simple moving averages at 1.0790, a solid technical barrier. Bears will have to continue to defend this ceiling firmly; failure to do so could result in a rally toward trendline resistance at 1.0810. On further strength, the spotlight will turn to 1.0865, the 50% Fibonacci retracement of the 2023 decline.

In the scenario of price rejection from current levels and subsequent downward shift, support areas can be identified at 1.0725, followed by 1.0695. On a pullback, the pair could find stability around this floor before initiating a turnaround, but should a breakdown occur, we could see a rapid drop towards 1.0645, with the possibility of a bearish continuation towards 1.0600 if selling momentum intensifies.

EUR/USD Chart Created Using TradingView

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