USD/JPY and EUR/USD Analysis: Outlook Amidst US Dollar Index Surge

Last week, the US Dollar Index (DXY) encountered a crucial juncture, finding support above the critical level ahead of the Consumer Price Index (CPI) release. Let's delve into the implications for trading USD/JPY and EUR/USD pairs amidst these developments.

US Dollar Index Holds Ground Following Mixed Data

The US Dollar witnessed a rollercoaster ride last week, facing selling pressure and plunging to its lowest level in seven weeks post the nonfarm payrolls report. Despite the data surpassing expectations, concerns loomed over potential Fed interest rate cuts, sparking a correction in the DXY.

However, Friday's mixed data injected some stability, halting further decline as the dollar stabilized around 102.7. Despite the setback, the dollar found support, particularly around the 102 region, showcasing resilience amidst market volatility.

Focus on Inflation Data and Trading Opportunities

As market attention shifts towards inflation data, particularly the US CPI release, traders are keenly observing potential movements in major USD pairs like EUR/USD and USD/JPY.

Chicago Fed's Goolsbee's recent dovish stance hints at the Fed's cautious approach, suggesting rate cuts might come sooner if inflation inches towards the 2% target. However, market sentiment remains divided, with March and April rate cuts deemed less likely.

Technical Analysis and Trading Strategies

Technically, the DXY, amid a downward trend, hovering above 102.8 signals a possible trend reversal. A breach above this level could indicate a halt in the downtrend, with the next target ranging between 103.6 - 104. Conversely, disappointing inflation data might trigger a swift downward spiral, potentially targeting levels below 102.3.

EUR/USD: Navigating Resistance Amidst Dollar Weakness

EUR/USD, buoyed by dollar weakness, surged from 1.07 to 1.1 over the past month. Despite expectations of ECB rate cuts, the euro remained resilient, testing crucial resistance at 1.0975 before retracing.

This week, attention is on the resistance level at 1.0975. A sustained breach might propel the pair towards recent highs at $1.11, with support anticipated around 1.0925. The impending CPI data could further sway EUR/USD's trajectory.

USD/JPY: Potential Revisiting of 150 Level

USD/JPY witnessed substantial gains last week amid BOJ's hints at a negative interest rate hike. Expectations of a policy rate increase and positive GDP figures bolstered the yen, pushing the pair towards support at 146.25.

With the upcoming CPI data, USD/JPY may approach the coveted 150 level. Short-term resistances lie at 147.5 and 149.4, while a descent towards 143 remains plausible.

Conclusion: Trading Amidst Volatility

In conclusion, amidst the US Dollar Index's fluctuation, traders eyeing USD/JPY and EUR/USD should closely monitor inflation data and technical indicators for trading opportunities. While the dollar remains resilient, market sentiment hinges on data releases and central bank actions.

Disclaimer: This article provides insights for informational purposes only and does not constitute investment advice. Trading involves risks, and investors should exercise caution and conduct thorough research before making any financial decisions.