Losses by the Dollar as Focus on Diplomacy Continues

The week ending 17 April mostly featured continuation of previous movements as American indices made further strong gains and the dollar declined against most major currencies. The current fortnight’s ceasefire between the USA and Iran might continue amid ongoing indirect talks. This article summarises recent news affecting the dollar, then looks briefly at the charts of XAUUSD and EURUSD.

The current fortnight’s ceasefire between the USA and Iran is due to expire on 22 April, but seems fairly likely to be extended. The latest round of indirect talks with Pakistan as mediator started on Wednesday, 15 April, and participants in major markets seem mostly convinced for now that there will at least be an extension of the ceasefire if not a resolution of key questions like Iran’s nuclear program and a reopening of the Strait of Hormuz.

Recent American data have generally been in line with expectations. Last week (10 April), the primary focus was on inflation, which increased as expected:

Large-scale disruption to shipping in the Gulf and the resultant large gains in the price of crude oil were widely expected to drive inflation higher, which is exactly what happened in the USA last month. However, annual headline inflation matched the consensus of 3.3% exactly and the annual core figure at 2.6% was slightly lower than expected.

For the time being, participants seem to have rejected the most aggressive scenarios for inflation this summer and so also rejected the most hawkish ones for the Fed. A fairly large majority of around 65%, according to CME FedWatch, expected the Fed to hold at the current 3.5-3.75% until the end of 2026; probabilities of cuts, while low, remain significantly higher than that of a hike.

For inflation and other American economic indicators in the months ahead, a lot depends on the results of Pakistan’s current ‘shuttle diplomacy’ and on the extent to which regional support can be drummed up for a deal acceptable to both sides. This might seem like an unlikely prospect now, especially given complications from the Lebanese front, but the ceasefire mostly holding is a positive sign. The next major economic news from the USA is the Fed’s meeting on 29 April.

Gold has risen in April so far as the conflict in the Gulf de-escalated, traders remain generally hopeful of a resolution in the near future, and the probabilities of significant monetary tightening in most countries, including the USA, have declined. Meanwhile, American inflation in March was overall in line with expectations.

The price has broken through the 23.6% weekly Fibonacci retracement and held for some days in the value area between the 20 and 50 SMAs. Further gains might be limited by relatively low volume and the overbought signal from the slow stochastic. The obvious target for buyers in the next few days would be the psychological area of $5,000, which was previously a possible support in March.

A short-term retracement lower might be limited by the 23.6% Fibo, but a break below there might see another test of $4,400. For now, the main focus on the chart will probably remain the 50 SMA from Bands; a daily close or two clearly above there might confirm more gains.

The dollar has generally declined in most of its major pairs since early April as optimism for a resolution of the Gulf conflict within the next few weeks remains high, so there’s been less demand for the greenback as a haven. Although expectations for significant monetary tightening in the eurozone, Britain, and elsewhere have declined, the euro has gained significantly as it appears that the worst-case economic scenarios for the summer might be avoided.

Euro-dollar’s significant rebound so far this month has pushed it into overbought based on the stochastic above all of the main moving averages, while volume has declined somewhat compared to around this time last month. $1.20 remains a possible resistance in the longer term, with $1.19 also in view if the price continues upward after 21 April’s German economic sentiment.

The 100 SMA coincides closely with $1.17, so this area might be a support in the next few days if the price retraces lower. A move significantly below $1.16 seems very unlikely for now unless hostilities in the Gulf escalate significantly.

This article was submitted by Michael Stark, an analyst at Exness.

The opinions in this article are personal to the writer; they do not represent those of Exness. This is not a recommendation to trade.

This article was originally posted on FX Empire