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US Dollar, EUR/USD, AUD/USD Price Action: Fed, Q2 GDP and CPI In Focus


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US Dollar, EUR/USD, AUD/USD Price Action: Fed, Q2 GDP and CPI In Focus

2022-07-25 | DailyFX
Justin McQueen, Strategist

USD, EUR/USD, AUD/USD ANALYSIS AND TALKING POINTS

  • US Dollar Extends Pullback
  • Euro Lifted By ECB and Kremlin Comments
  • AUD/USD Awaits Local CPI Data

USD: The USD remains on the backfoot following last week’s surprise contraction in the most recent US PMI report. As such, while this has fuelled an unwind of the US Dollar’s recent strength, it is thus far a case of a tactical pullback as opposed to a meaningful pullback. Despite the ECB’s surprise with a 50bps hike to end the era of negative interest rates, the current narrative surrounding Europe remains bleak. For now, the growth story trumps the normalisation outlook, meaning that preference for Euro exposure is on the short side.

This week, we will get a first look at the US Q2 GDP report, consensus looks for a tepid rise of 0.4%. However, there is a heightened risk according to the Atlanta Fed GDP Now Model that the figure could show a contraction, which if realised would mark a technical recession following the 1.6% drop in Q1. Over the weekend, US Treasury Secretary Yellen weighed in on the upcoming GDP report, stating that even if the number is negative, the US is not in a recession now, referencing the fact that the labour market is “extremely strong”. I think this is noteworthy coming from a former Fed Chair, as this gives some insight into perhaps the thinking among the FOMC. Suggesting that the Fed will remain steadfast in tightening policy aggressively as they lean against the strength of the labour market.

The trend is the US Dollar has generally been defined by the 21 and 55DMA. While softer yields and a pick-up in risk sentiment have also weighed on the greenback, the latter is likely a bear market rally as the path of least resistance remains lower in the current backdrop.

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