The dollar is losing its grip as the week progresses, with DXY sliding below recent support levels while EUR/USD and GBP/USD capitalize on the shift. At the desk, we are watching a critical juncture where U.S. rate differentials are narrowing, commodity prices remain elevated, and risk appetite is testing the resilience of safe-haven flows. With gold hovering at $4,459.52/oz and crude oil holding near $92.74/bbl, the macro backdrop is fueling a rotation out of the greenback.
DXY: Technical Breakdown Accelerates
The dollar index is under pressure, breaking below the 103.50 handle that had acted as a pivot for much of the past two weeks. The move is driven by a combination of softer U.S. data expectations and a sharp rally in the euro and sterling. DXY is now testing the 103.20-103.00 zone, a region that corresponds with the 100-day moving average. A clean break below 103.00 would open the door to 102.50, a level not seen since early September.
The catalyst for the selloff appears to be a reassessment of the Federal Reserve’s next move. The market is pricing in a higher probability of a rate cut by mid-2025, as inflation readings moderate and labor market data shows signs of cooling. Meanwhile, the yield advantage of U.S. Treasuries over German bunds has narrowed by 15 basis points this week, reducing the dollar’s carry appeal. If DXY closes below 103.00 today, we would expect a test of the 102.80 support level, with a potential slide toward 102.20 if momentum accelerates. Resistance now lies at 103.80, where the index stalled earlier in the session.
EUR/USD: Bulls Target 1.1700 as Momentum Builds
Euro-dollar is the primary beneficiary of the dollar weakness, climbing to 1.1640, up 0.26% on the day. The pair has broken above the 1.1600 resistance level that had capped gains for two weeks, and the next target is the 1.1700 psychological barrier. The move is supported by a stronger-than-expected eurozone services PMI reading, which came in at 52.4 versus 51.8 consensus, signaling resilience in the bloc’s largest sector.
From a technical perspective, the 50-day moving average at 1.1550 is now acting as support, and the relative strength index (RSI) is at 58, leaving room for further upside before overbought conditions emerge. A close above 1.1650 would confirm the breakout, targeting 1.1720, the August high. On the downside, a reversal below 1.1600 would expose the 1.1550 level, but the path of least resistance remains higher as long as DXY continues to weaken.
The euro is also benefiting from a shift in rate expectations. The European Central Bank is seen as more hawkish than the Fed, with markets pricing in a 25-basis-point rate hike in December. This divergence is compressing the EUR/USD rate differential, making the euro more attractive for carry trades. However, traders should be cautious of a potential pullback if the U.S. dollar finds a bid on safe-haven flows, particularly if geopolitical tensions escalate.
GBP/USD: Cable Breaks 1.3500 as Sterling Outperforms
Cable is leading the G10 charge, surging to 1.3480, up 0.39% on the day, and briefly touching 1.3500 before consolidating. The pound is drawing support from a hawkish Bank of England stance, with Governor Bailey reiterating that monetary policy remains restrictive enough to bring inflation back to target. The UK services PMI also came in at 53.2, above expectations, signaling that the economy is avoiding a recession.
The break above 1.3450 resistance is significant, as it marks a three-month high. The next resistance level is 1.3550, followed by the 1.3600 handle, which has not been tested since August. The 200-day moving average at 1.3400 is now providing strong support, and the RSI is at 62, indicating bullish momentum without being overextended.
The pound is also benefiting from a narrowing of the UK-US yield spread. The 10-year gilt yield is at 4.85%, compared to the 10-year Treasury yield at 4.70%, giving sterling a yield advantage that is attracting flows. However, the UK’s fiscal outlook remains a risk, with the autumn budget due next month. Any signs of fiscal slippage could weigh on the pound, but for now, the trend is firmly bullish. A close above 1.3500 would confirm the breakout, targeting 1.3580.
Cross-Market Dynamics: Commodities and Risk Sentiment
The dollar weakness is being reinforced by strength in commodity markets. Gold is holding near $4,459.52/oz, despite a slight dip, as investors hedge against currency risk. Silver is down 1.29% to $72.83/oz, but the gold-silver ratio remains elevated, suggesting that silver may play catch-up if risk appetite improves. Crude oil is steady, with WTI at $92.74/bbl and Brent at $94.88/bbl, as supply concerns from the Middle East offset demand fears. The correlation between oil and the dollar is negative, meaning that higher oil prices tend to weigh on the greenback.
Risk sentiment is also supportive of the euro and pound. The S&P 500 is trading near all-time highs, and volatility indices are low, encouraging carry trades and risk-on positioning. The Japanese yen remains under pressure, with USD/JPY at 159.94, but intervention risk is high if the pair approaches 160.00. The dollar’s weakness is not uniform, as it is losing ground to the euro and pound but holding steady against the yen and Swiss franc.
Scenarios and Key Levels to Watch
For DXY, the key level is 103.00. A break below this would confirm a bearish trend, targeting 102.50 and then 102.20. If the dollar finds support and rebounds, resistance at 103.80 must be reclaimed to signal a reversal. For EUR/USD, the 1.1700 level is the next major target. A breakout above this would open the door to 1.1800, but a failure to hold 1.1600 would expose 1.1550. For GBP/USD, 1.3500 is the immediate resistance. A close above this would target 1.3580, while a drop below 1.3400 would invalidate the bullish setup.
The main risk to the current trend is a sudden shift in U.S. rate expectations. If the Fed signals a more hawkish stance, the dollar could rally sharply. Similarly, geopolitical shocks could trigger a flight to safety, boosting the dollar and yen. However, the current momentum favors the euro and pound, and we would look to buy dips in both pairs.
Desk View
- DXY breakdown below 103.00 is a sell signal; target 102.50 on a close below.
- EUR/USD breakout above 1.1600 is valid; buy dips to 1.1580 with a stop below 1.1550.
- GBP/USD is the strongest G10 pair; a close above 1.3500 targets 1.3580.
- Risk sentiment and commodity prices remain supportive of the dollar selloff; monitor U.S. data next week for confirmation.
Risk Disclaimer: This article is for informational purposes only and does not constitute investment advice. Trading forex and derivatives carries a high level of risk. Past performance is not indicative of future results. Always conduct your own research and consider your risk tolerance before trading.