Is the Uptrend in Dollar Going to Continue?

July 16, 2021 at 09:34 PM

Since the begging of summer, the FX market volatility has calmed a bit with the EURUSD pair trying to find its direction for the next quarter. Last year the inflation expectation has been rising sharply as the USD dropped. However, it’s been a completely different story for 2021 as the dollar has been trying to erase those losses. 

The dollar index was falling starting from April and till the end of June which sent the index from 90 to 92.50. At the same time, the EURUSD pair dropped from 1.22 to 1.18, and the USDJPY pair rose from 108 to 111. The second half of the year could be even more interesting as the Fed is about to start tapering its monthly purchases. That is the consensus of market participants. The plan should be announced in August, and the actual taper is expected to begin in late 2021 or early 2022. 

There is some price tightening happening on the market with the Feds plan of hiking monetary policy in late 2022. However, it is far from being considered a “realistic expectation.”

As for the USD, the current resistance is at April highs of 93.50 (for the EURUSD pair, the support is at 1.17). If the dollar strengthens above that level, another leg higher could bring the dollar index to 95 and the EURUSD pair to 1.15. Alternatively, if the USD comes under selling pressure, the support for the index is at 90, and the resistance for the EURUSD pair nears 1.22.

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