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Greenback Continues Downward Trend, USD Index at Year’s Lows

FOREX
  • A volatile session for currencies in which a chaotic release of the BLS payrolls benchmark revisions provided only a momentary hiccup for an otherwise steady session of greenback selling. As expected, the July FOMC minutes signalled that participants were eyeing a cut in September, with "several" seeing it as "plausible" to cut already in July, which has paved the way for an extension of dollar weakness as we approach the APAC crossover.
  • As such, the USD index (-0.49%) trades at fresh yearly lows, having extended below 101.00 in recent trade, significantly narrowing the gap to the Dec 2023 lows of 100.62. GBP stands out as one of the key beneficiaries in G10, with the ongoing bid for equities providing further optimism to higher beta currencies.
  • A close at current or higher levels would be the firmest close for GBPUSD since July last year, and brings the pair within striking distance of the 1.3142 bull trigger. While USD weakness has certainly played a part so far this week, today stands out on the GBP strength more broadly, with EURGBP testing 100-dma support at 0.8510 and looking vulnerable on any break of 0.8504, the 50% retracement for the upleg off the mid-July low.
  • Moving in tandem, EUR/USD shows through the mid-December, extending to a high of 1.1175 at typing. Underlying drivers here remain the broad USD weakness (especially given the single currency’s weighting in the usd index) this week as well as the bullish underlying techs in the pair: moving average studies remain in a bull-mode set-up, highlighting a rising trend. 1.1201 is the next objective for the move, the 1.50 projection of the Jun 26 - Jul 17 - Aug 1 price swing.
  • The next test for the Euro’s outperformance will be Thursday’s release of Eurozone PMI’s, where markets will look for the continuation of the dynamic highlighted by President Lagarde in the ECB's July meeting press conference, with services driving the Eurozone’s gradual recovery in economic activity. Jobless claims and existing home sales highlight the US calendar.
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