As we look ahead to the US Dollar Technical Forecast, it is important to note that we have been in a strong uptrend and a long term support level has been tested. This is likely to continue as we head into a very heavy week of data for the US economy. The most important of these are the numbers in relation to the US GDP and the interest rates in the United States and Canada.
EUR/USD
It’s been a tough week for the EUR/USD. Despite minor bullish news, the pair fell for the second straight week. That’s because the Ukrainian crisis has continued to push up against the market.
The US Dollar Index is trying to form a bottom near multi-month lows. However, the market is still in the dark about the Fed’s plans. Depending on the outcome of tomorrow’s FOMC meeting, the EUR/USD could find its feet again.
The euro has been in a multi-year downtrend. But despite recent declines, the medium-term pattern remains intact. In fact, the rumor of an ECB stimulus plan is likely to send the currency higher.
The US dollar is facing increased pressure from sellers, but it’s important to note that the euro is not the only one in a vulnerable position. GBP/USD is also in a weak position, having recently pulled back from the 1.2400 level.
USDCAD
The USDCAD technical forecast for today is that the market is range-bound and is expected to go higher. There’s a good chance that the next resistance level for this currency pair will be the 1.3700 figure.
If the bulls manage to break through this resistance, they will be looking to retest the 1.3450 level. However, a decisive break below the 1.3260 level will signal a broader bearish implication.
It is very important to remember that there is an ongoing bullish trend for the USD/CAD pair. The price has recovered from a month-long sell-off, though.
On the other hand, the Federal Reserve’s policy tightening has had a negative impact on the labor market and consumers. This could also affect the price of oil, which is a key driver for the currency.
US GDP
There is a heavy week of US GDP data on the horizon. This is the first time investors will have the opportunity to compare what happened last year to what is expected for this year. The result could be a major shift in markets.
The US dollar is holding steady at 102. The US Dollar Index is also trading within its normal range.
Besides the usual US GDP data, the market will be watching the NFP report. It may be even more important than usual.
A fiscal aid package passed by Congress in 2020 will increase real GDP by roughly 30 cents for each dollar of total federal outlay from 2021 to 2023. However, it will take a while before the cumulative effects of the package fully kick in.
Interest rate differences
For a while now, the US Dollar has been in a bullish groove, thanks in part to some stellar interest rate data. The Fed’s recent decision to hold the door open on rate hikes should give the currency a much needed breather.
However, this won’t last long. A number of high-impact events are scheduled to hit the economic calendar next week, including the release of the NFP report and the ECB’s latest policy meeting.
To help sift through all the data, the Fed has stepped up its monetary policy game by giving out forward guidance on interest rates. This includes a triumvirate of hints at rate hikes in the coming year, plus an updated monetary policy framework that’s supposed to strengthen guidance in future quarters.
Inflation, trade, and capital flows
A heavy week of US data is coming up. Next Tuesday, the government will release the November CPI, followed by reports on consumer prices, initial jobless claims, and retail sales. All of these measures will give more insight into inflation and its path.
Similarly, the European Central Bank is set to announce its monetary policy next week. This will include the report of the economy’s performance, unemployment, and business and consumer confidence.
Inflation is caused by a rise in the prices of many goods, which can be divided into three categories: demand-pull inflation, cost-push inflation, and built-in inflation. Each category has its own specific effects, and businesses need to adjust their behavior accordingly.
Demand-pull inflation occurs when the economy’s output capacity is not enough to satisfy demand. Cost-push inflation happens when the price of production inputs or finished products increase. The result is that a company has to raise its prices.