US Dollar News: Fed Outlook Hit By Inflation Risk Renewal

The US dollar has been supported by recent data showing strength in the consumer and job markets, which has raised concerns about inflation and the possibility of the Federal Reserve maintaining interest rates in July.

Retail sales increased by 0.2% in June, while core retail sales rose by 0.5%. Initial jobless claims dropped to 208,000, indicating a strong job market. These data points have led to a 60% chance of a rate increase by September, according to futures markets, as the war could lead to higher inflation.

The European Central Bank’s meeting on July 23 will be a crucial event for the euro, with a rate decision expected to hold the deposit rate at 2.25%. Energy-induced inflation remains a concern, and the market is watching closely for any signs of a change in policy.

Sterling Remains Supported

Sterling remains supported due to the expectation of a more prudent government on the UK economy and a cautious policy at the Bank of England. Markets see at least one more rate hike in the remainder of this year as inflation stays above target.

The US dollar index (DXY) is trading near 100.75 on the 4-hour chart, following a relief from near 100.35 last week. The price has a clear trendline overhead that caps the move, and it trades near and below the 50-EMA (100.84) & 100-EMA (100.84), indicating that the overall near-term move is still under pressure despite the recent relief.

The first resistance is at 100.89, which is the trendline and at the 61.8% retracement level. If the price can sustain a move past 100.89, the target will be 101.03, then 101.22, and 101.46. The nearest support is at 100.69. Further support will be near 100.61, 100.51, then the recent support near 100.35.

The RSI is at about 49, indicating that the market momentum is balanced at the current price, as the buyers and sellers are having equal strength at this time.

For now, my view is that DXY is consolidating beneath the resistance and trendline. If the price can get above the trendline, then the chance of a broader recovery will get more favorable. If sellers push the price away from the current level, then there will be a higher chance of seeing another test of 100.61 and 100.35 support.

GBP/USD Technical Analysis

GBP/USD is currently at 1.3466 on the 4-hour chart after falling from a peak near 1.3559. The pair is trading above the 50-EMA (1.3424) and the 100-EMA (1.3387), and the trendline remains up, indicating that GBP/USD’s short-term structure is still favorable.

Resistance is found at 1.3475, then 1.3507, and at the recent swing high of 1.3559. 1.3449 is the first line of defense, with additional support at 1.3422 and the ascending trendline (around 1.3340). After declining from overbought levels, the RSI has fallen to 55.

As I see it, if GBP/USD remains above 1.3449, the recovery structure will remain in place. However, a decline below the trendline may lead to an extended consolidation to the EMAs.

EUR/USD Technical Analysis

On the 4-hour timeframe, EUR/USD sits at 1.1439, holding above the rising trendline and trading close to the 50-EMA at 1.1428. EUR/USD continues trading below the 100-EMA (1.1438) and the 1.1461-1.1493 area of resistance, where the bears have prevented higher gains in recent times.

On the downside, 1.1423 is the first support, followed by the rising trendline (around 1.1380) and the 1.1324 low touched in July. The RSI is trading near 51, signaling neutral market conditions.

In my opinion, EUR/USD is consolidating unless there is an upside close beyond the resistance area in question. The pair will be better off technically if it breaks out of this range and reaches 1.1493 and 1.1525. However, a breach of the rising trendline may result in a sell-off down to 1.1380.