The number of initial and repeated applications for unemployment benefits in the United States continues to decline, thereby indicating a recovery in the labor market. But the US dollar index reacted cautiously to this release, as all attention is now focused on the US Federal Reserve's readiness to raise the rate. Most likely, we will have to see at least one more, and possibly two reports on changes in the growth rate of inflation, which will record a steady increase before the Fed openly talks about raising the main interest rate. Given all this, it becomes clear that an additional bullish fundamental factor is needed to further strengthen the USDX.
The return of USDX quotes under the support level of 90.50 will cancel the bullish scenario.
The activity of sellers significantly decreased at the lower border of the ascending channel. Therefore, the return of the pair's quotes above 1.2100 will serve as the first signal indicating the willingness of buyers to resume growth to 1.2175 and further to 1.2240/50.
A bullish scenario is possible only if the US dollar weakens overall. Let me remind you that today we will publish a report on changes in the volume of retail trade in the United States. Economists expect further growth in this indicator, even after the explosive growth in March. Accordingly, confirmation and even more so exceeding the forecast can support the stock market, thereby reducing interest in the USD-a bullish scenario for the pair.
As the pair's quotes approach 1.4000 – a strong technical and at the same time psychological level of support, the activity of sellers decreases. But only the return and subsequent fixation of the pair above 1.4075 will allow us to speak about the readiness of buyers to resume growth.
Since today Britain will not publish important macroeconomic reports that can have a strong impact on the GBP, all attention will be focused on statistics from the United States. As a result, there is a risk of increased volatility at the opening of the US trading session.
The weakening of the US dollar continues to put pressure on the pair. Moreover, the overall strengthening of the US currency did not end with the fixation of quotes above the key resistance level of 109.70. All this increases the risk of the pair returning to 109.25, and a break of this level can provoke a more powerful wave of decline to 108.35.
The decline of this currency pair is possible under the condition of a general weakening of the USD.
The above overview is not a direct guide to action, but only a recommendation.