On 6thMay, the US dollar, gauged by the DXY index, displayed a slight softening amidst mixed US Treasury yields and reduced liquidity in the FX market due to UK markets being closed for a bank holiday. While the dollar weakened against major currencies such as the euro and pound, it strengthened against the yen.
The DXY index has seen a decline of over 1.4% from its April peaks, although it has slightly rebounded from its recent low established last Friday. However, bullish sentiment has notably waned in recent trading sessions, particularly following the Federal Reserve's dovish stance at its latest meeting and disappointing US employment data.
The Fed's commitment to monetary easing despite renewed inflation apprehensions, as inferred from last week's FOMC meeting, along with April's weaker-than-expected job creation and subdued wage pressures, has led to a significant retreat in bond yields in May. This has revived expectations for rate cuts later in the year, after they were substantially scaled back late last month, exerting downward pressure on the US dollar.
Looking ahead, the US economic calendar lacks high-impact events that could trigger substantial volatility in the coming days, potentially allowing current forex trends to stabilize without dramatic price swings. However, a reassessment of the near-term outlook may be necessary around mid-May, coinciding with the release of the next US CPI figures. This report will provide fresh insights into the prevailing inflationary environment, crucial for shaping the Fed's future policy decisions and the timing of potential interest rate adjustments.
EUR/USD Technical Analysis:
On 6thMay, EUR/USD edged higher towards the 1.0800 level, nearing both its 50-day and 200-day simple moving averages. Bears will seek to keep prices below these technical indicators to halt bullish momentum, with a breach potentially triggering a rally towards trendline resistance at 1.0830, followed by 1.0865.
Critical support levels to watch are 1.0750 and 1.0725, with a breakdown potentially leading to further declines towards 1.0695 and 1.0645. However, a stabilization and subsequent rebound from the latter zone could occur before attempting a recovery, although a breakdown might open the door to a decline towards the 1.0600 mark.
GBP/USD Technical Analysis:
GBP/USD also saw gains on 6thMay, reclaiming its 200-day simple moving average and nearing resistance between 1.0610 and 1.0630, where the 50-day SMA intersects with two significant trendlines. Overcoming this technical barrier could propel the pair towards 1.2720.
Conversely, a move below the 200-day SMA would bring support into focus between 1.2515 and 1.2500, with a failure to hold above potentially leading to a drop towards 1.2430 and eventually the psychological level of 1.2300.
The performance of these currency pairs in the coming days will likely be influenced by ongoing market sentiment, economic data releases, and central bank policies.