Dollar beaten down at month-end but now the real test begins

The dollar was once again beaten down yesterday but it’s a tough one to feel out amid potential month-end and quarter-end flows. Now that we’ve gotten that out of the way, the real focus can begin. And the charts are definitely pointing towards a testing time for the greenback on multiple fronts.

EUR/USD is a standout after eight straight days of gains, with the pair testing its highest levels since 2021. Buyers are continuing to build momentum towards a potential push to 1.2000. But after this long winning streak, perhaps we’re overdue a slight breather? That will certainly be a consideration with eyes on US labour market data on Thursday.

But in any case, buyers are well in control with lots of breathing room for the time being as seen above.

Somewhat similarly, you have USD/CHF which is also breaking to fresh lows since 2011 with a firm break under 0.8000 now delivered. It adds to another blow to the dollar against European currencies especially.

Meanwhile, GBP/USD is also running up above 1.3700 with little in terms of any major resistance before meeting 1.4000 next. With the BOE needing to consider dual-sided risks and the Fed gradually erring more towards a rate cut, there is a minor divergence setting up in the short-term there. So, that could help with the push higher in cable; all else being equal.

As for USD/JPY, the pair is still sitting within the range seen in April at least. To the downside though, the 140.00 mark remains the most critical one as it has held back sellers since December 2023. So, that’s the one to watch out for if the dollar slumps further amid any continued bid in bonds.

Elsewhere, you have AUD/USD which is now looking to firmly shake off resistance closer to the 0.6500 mark. The 100-week moving average at 0.6503 had previously held the pair back somewhat but that looks to be giving way now as buyers are also pushing past daily resistance around 0.6537-50 at the moment.

In essence, the dollar is being pressured on multiple fronts amid the ongoing policy volatility and incoherence by the Trump administration. It’s all a mess for the greenback amid a loss of confidence with traders continuing to divest elsewhere. Mind you, and this is with the Fed having held interest rates up as they are until now while other major central banks have been cutting (besides the BOJ).

All that being said, dollar positioning is definitely crowded towards the short side now. So, that is also something to be mindful about. In case of any short squeezes, it can be a quick and sharp one so long as the conditions are favourable. Just keep that in mind.

For now, the charts are pointing to the dollar still being in a very vulnerable spot with month-end flows out of the way. The real test begins now and we won’t have to wait long with the US jobs report coming up on Thursday to provide some call to action.