The US debt dispute is still unresolved. The dollar gains

As expected, the summit on raising the US debt ceiling did not result in an agreement. However, the FX market shows no signs of nervousness due to the approaching debt repayment date. This morning the dollar continues its strengthening move that started a day after the last Fed decision.

The longer it lasts seeking a resolution to the US debt dispute, the more this tension may affect the mood in the United States. If this is combined with further negative macro data from the economy, which would suggest a further cooling of growth dynamics, from the market's point of view, this may support expectations for imminent interest rate cuts by the Fed. Thus, downward pressure on the dollar may reappear.

Pressure on the dollar

For now, the USD is immune to depreciation. On EURUSD level 1,11 capitulated. Three times approaching this level ended in failure of buyers each time. So we have a triple top pattern, alternatively you can see a "head and shoulders" pattern here. In both cases, the potential neck line was broken. After yesterday's micro-growth correction, today the decline of the eurodollar is continued. potential the range is 1,08 – this is what the chart shows, although there is really little left to this round level. However, it will not surprise me if the exchange rate soon falls below this level.

The entire upward impulse in March-April has so far been abolished in less than 50 percent. At short notice decreases are likely to predominate. The most important question that Eurodollar traders are asking themselves at the moment is where will the appreciation of the dollar end.

The trend line is broken

The signal for further increases in the dollar also comes from the USD index chart. Quotations broke the upper limit of consolidation several weeks and broke the downward trend line. Just as on EURUSD we have a triple high, so on the US Index a hard bottom has been created in the form of a triple low.

Coming back to the main currency pair, I would like to point out that the peak (around 1,1090) was created on the day when the Fed decided on rates for the last time and Powell gave his speech to the world. Even though the market interpreted the chairman's words as a signal of the end of the tightening cycle, the dollar was unable to gain more and the EURUSD pair was unable to break above 1,11. A day later (May 4) the last USD appreciation rally began.

Source: Łukasz Zembik, OANDA TMS Brokers