On Monday, the US dollar began to assert strength against the basket of six major rivals after a strong pullback on Friday. It rebounded from the low around 92.50. Demand for the US dollar recovered as investors shifted their attention again to safe-haven assets amid geopolitical tensions in Afghanistan, the rapid spread of the Delta strain, and weak data from China. Industrial production and retail sales undershooting the forecast values after showing steady growth for several months. A fresh batch of statistics showed that the pace of recovery in the world's second-largest economy may really slow down, which means that there are risks for the global economy as well.
Therefore, the US currency index may well rise above the 93.00 mark. However, bulls are unlikely to be able to significantly push the quote higher. A strong resistance level is located near summer highs of 93.15–93.20. If we consider a more distant perspective, the forecast for the US dollar remains positive. The bullish trend will remain in force as long as the US currency is trading above the 200-day SMA or the level of 91.30.
The yen managed to exhibit strength amid high demand for safe-haven currencies. In addition, Japan maintains a positive trade balance and its currency is in demand all over the world. Meanwhile, it is difficult to say what trend for the USD/JPY pair will prevail.
The yen gained 8% from January to March. At the same time, it grew the most in just two weeks - from February 23 to March 9. The stellar rally gave traders hope that the yen would continue to hit new highs. However, technical analysis knocked the ground out from under their feet. The formed ascending wedge indicates that sellers are quite capable of holding positions, while buyers are ready to push the pair higher. This figure signals the bearish movement as it follows the upward movement.
On Monday, the USD/JPY pair faced an aggressive sell-off. According to analysts, the quote is highly likely to retest the August lows of 108.70. If it declines below this level, it may well tumble to the nearest support level of 108.19.
The return of the USD/JPY pair above 109.76 may weaken the downward pressure. The pair may recover to 110.16. At the same time, the forecast will remain negative. To change it to a positive one, the US dollar needs to consolidate above 110.31-110.33, Credit Suisse points out.
As for EUR/USD, at the start of the week, bulls failed to push the quote above the 1.1800 mark, although there was an opportunity. Meanwhile, in Europe, the market sentiment is quote optimistic amid the high level of vaccination and a decrease in the number of new coronavirus cases. Thus, Friday's growth of the pair may well be the beginning of an upward trend. Therefore, its decline on Monday might have been just a small correction.
Market participants are currently anticipating the publication of the FOMC Meeting Minutes and the ECB report on monetary policy. Another important event will be the publication of a preliminary estimate of GDP and employment in the eurozone.
The euro may develop a steady rally if it consolidates above 1.1910. If bears take the upper hand, the EUR/USD pair may return to the level of 1.1700. So, currently, there are two important levels: 1.1784 and 1.1765. If the quote dips below (1.1765), the euro will significantly decline.
The outlook for the pound sterling is contradictory, and yet the bearish bias prevails. The GBP/USD pair may decrease due to demand for safe-haven assets. Even if the US dollar weakens, it will not help the pound sterling much as traders are extremely concerned with the pandemic situation in the UK. The bearish target for the pair may be the level of 1.3670.
Bulls may also regain ground. It will largely depend on the tone of the FOMC meeting minutes, which will be released on Wednesday (August 18). If the US dollar index declines, the pound sterling may recoup some of its losses.
As the situation remains uncertain, bulls and bears are likely to continue to struggle. Sellers will defend the area of 1.3890-1.3910. If buyers break through these marks, they will take control at least in the short term. If so, the rally of the pound sterling may last until the Jackson Hole Economic Symposium.
