On Thursday, the US dollar has stayed ahead of other major currencies. The short-term target for the US dollar index remains at 107.00. From there, the rally's upside momentum could extend towards the high at 107.45.
Following yesterday's release of the FOMC meeting minutes, the overall sentiment in the market remains cautious. According to the minutes, the regulator considers easing its upcoming interest rate hike as inflation slows down. However, there are few signs that inflationary pressure is decreasing. The Federal Reserve will take incoming data into account when making further decisions on monetary policy.
Today, traders will digest fresh US economic data, such as existing home sales report for July. Furthermore, the president of the Fed Reserve Bank of Kansas City, Esther George, will give a speech, followed by remarks by the president of the FRB of Minneapolis Neel Kashkari. Their statements can provide more information than the FOMC meeting minutes, which only summarize the results of the previous Fed meeting.
EUR/USD is currently fluctuating in a relatively narrow range above 1.0150. The stronger US dollar continues to put pressure on the euro amid mixed news from the EU. Isabel Schnabel, ECB's board member, stated that a technical recession in the euro area is possible, which has weakened the European currency. "The concerns we had in July have not been alleviated. I do not think this outlook has changed fundamentally," Schnabel said. At the same time, ECB's Martins Kazaks stated the EU regulator would continue hiking interest rates to fight inflation.
Euro managed to recoup some of its losses early during the European session. However, the position of the European currency remains shaky, despite hawkish statements by ECB policymakers. If risk-off sentiments continue to predominate during the North American session, EUR/USD would find it difficult to advance.
Overall, EUR/USD's bearish trend will likely continue. If the pair fails to hold on to 1.0150, its support will be located at 1.0120, as well as 1.0100 and 1.0050. The closest resistance level is 1.0180.
The Australian dollar's situation over the past several sessions has been moribund. Following Wednesday's heavy losses, AUD/USD was hit today by weak labor market data. Employment contracted in Australia, with the number of jobs falling by almost 41,000, well below the expected increase by 25,000 jobs. However, unemployment unexpectedly decreased to 3.4%. Economists expected unemployment to be largely unchanged.
The Australian dollar went down following the release of labor market data, as market players focused on weak employment figures. However, AUD/USD tried to recoup some of its losses later during the European season.
Analysts predict that AUD/USD will decline within the next couple of months. Weaker economic growth will force the Reserve Bank of Australia to carefully consider its monetary policy tightening at each of its next meetings. However, even if the RBA maintains its hawkish stance, AUD/USD is unlikely to find significant support, as the markets have already priced in the RBA's policy adjustments.
At this point, market players are pricing in an 80% probability of a 25 bps rate decrease in September.
The next target for AUD/USD is 0.6868. A breakout below this level would send the pair towards the yearly low at 0.6680. In the worst case scenario, the quote could even hit 0.6461, the retracement level of the 2020-2021 uptrend.
However, if the pair breaks above the previous high of 0.7146, it could then resume its upward movement and test the July high at 0.7282.
The pound sterling remains weak, despite the recently released hot inflation data and hawkish BoE expectations. The market's reaction stems from BoE lagging behind the Federal Reserve in terms of monetary policy.
Commerzbank's analysts noted the policy lag, stating that the pound sterling would likely fail to recover its losses, particularly against the US dollar. GBP/USD could likely fall below 1.2000 once again, they added.
Today, GBP/USD has tested this level, briefly dipping below 1.2000 for a split second.
The pair's closest resistance lies at 1.2100, while its key support is located at 1.2050. If bears push GBP/USD below this level, 1.2000 and 1.1940 would become their next targets.
