The U.S. Dollar weakens in the last day of May – Market Overview

By: Miguel A. Rodriguez

17:25, 01 June 2021

The end of the month brought with it the U.S. Dollar’s selloff, leading to a surge in price for its competitors.

In the case of EUR/USD, the pair rose about 30 pips, and so far, it has not moved from these levels during the European session.

May’s CPI figures for the E.U. showed a rise of up to 2%, above the expected 1.9% and three tenths higher than the previous data for April. This result prevented the euro from losing ground, although the data is still within the ECB’s target of around 2%.

The global trend favours price increases due to the rapid recovery of the economy due to the elimination of mobility restriction measures and the stimulus policies of governments and central banks. The European Central Bank will have to address this issue at its next meeting with the added difficulty of a stronger euro that counteracts the effect of its expansionary monetary policy.

The pair returns to the main resistance zone around 1.2260 although, the RSI indicator still shows signs of exhaustion with a divergent performance.

The unemployment figure to be published this Friday is becoming more and more critical. A significant drop in the unemployment rate could lead to a stronger U.S. Dollar and a decline in the EUR/USD pair. Market forecasts put this figure at 5.9% compared to 6.1% previously. Still, an improvement over the expected figure will be necessary to affect the U.S. Dollar’s price.

In this regard, the U.S. 10-year bond yield once again increased above 1.60%, a movement that occurred somewhat due to the recently published US CPI figure, which exceeded all expectations. And for the moment, at least in the short term, the positive correlation between the price of the dollar and the yields of the U.S. treasury bonds is not taking place, which is a sign that the weakening of the dollar is related to adjustment flows for investment portfolios.

This weakness of the dollar and the increase in inflation expectations are acting as support to the price of GOLD.

The precious metal has already exceeded the Fibonacci retracement level of 0.786% of the last bearish leg that began at the start of the current year and bottomed out in March. So, the previous downtrend is considered finished and is on its way towards the last highs of 1957. Although the RSI indicator is already overbought on the daily chart, it is still not showing any signs of depletion or divergences.

Sources: investing.com, Bloomberg.

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