EUR/USD and GBP/USD Forecast | US Dollar Weakness and Technical Outlook

EUR/USD and GBP/USD Analysis

Recently, we have seen the US dollar suffer at the hands of poor economic numbers, as the latest jobs announcement came in quite shockingly badly. During the month of August, the United States added 22,000 jobs, instead of the expected 75,000. Last Friday, we had seen the US dollar sell off against almost everything, and Monday was a bit of a continuation. However, on Tuesday we are starting to see a little bit of a different activity.

The Importance of the US Dollar

The US dollar could be a bit tricky to trade at the moment, because on Thursday we have the European Central Bank interest rate decision, and then on the 17th we have the Federal Reserve interest rate decision. There will be a lot of economic noise out there influencing where the US dollar goes, but there are other things to take into account beyond simple interest rate hikes or cuts. Quite frankly, a lot of forex traders find themselves in trouble simply shorting the US dollar against everything when bad economic news becomes apparent in America. While the US dollar can lose strength for a while, the reality is that sooner or later, traders will run to the safety of the US Treasury market, which of course demands US dollars.

It is in this environment that we may find ourselves rather quickly. That being said, the timing is always a bit difficult. The safety valve of the US dollar is quite often what traders used to get away from the global economic troubles. After all, if the United States is starting to slow down, the rest of the world will feel it.

Technical Analysis

The euro has been trading between the 1.16 level at the bottom, and the 1.18 level at the top over the last several weeks. It is worth noting that we have pulled back a bit from the 1.18 level, as exhaustion has shown itself to appear yet again when we get to that area. If the market were to break above the 1.18 level, then it opens up the possibility of the euro going to the 1.20 level, but as we are pulling back in and of course there is the European Central Bank decision on Thursday, it makes sense that this market may stay in this range, at least until we get through that announcement.

In the British pound, the 1.36 level has shown itself to be a significant barrier again, and it is worth noting that fairly quickly in the trading session on Tuesday, we have seen a bit of hesitation, and a clear sign of significant resistance just above. Much like the euro, if we can break above this level, you are probably going to see the British pound attempt to gain 200 pips. However, if we were to pull back from here, the bottom of the overall range is found at the 1.34 level.

Risk Appetite

Risk appetite isn’t always the easiest thing to get a handle on, but if traders are starting to get concerned, all of the usual safety assets will be attractive. Ironically, despite the fact that there is a bit of trouble in the US economy, one of those safety assets ends up being the US dollar. On the other hand, if the market has a clear break out to the upside in these currency pairs, momentum should continue.

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