The US dollar fell against most of its major rivals on Thursday, as disappointing economic data and dovish signals from the Federal Reserve minutes weighed on the greenback. The dollar index, which measures the strength of the dollar against a basket of six currencies, dropped to 98.32, the lowest level since September 23.
The US initial jobless claims rose by 4,000 to 293,000 in the week ending October 1, the highest level since August 2020. The four-week moving average, which smooths out volatility, also increased by 3,500 to 278,500. The data suggested that the labor market recovery was losing momentum amid the ongoing pandemic and supply chain disruptions.
The Fed minutes from its September meeting also added pressure on the dollar, as they showed that some policymakers were concerned about the downside risks to the economic outlook and wanted to see more progress on inflation and employment before tapering bond purchases. The minutes also indicated that the Fed was not in a hurry to raise interest rates, as it expected inflation to moderate in the medium term.
EURUSD Breaks Above 1.05 for the First Time Since March
The euro gained ground against the dollar on Thursday, as the EURUSD pair broke above the 1.05 level for the first time since March 2020. The pair settled above the 50-day exponential moving average (EMA), which acted as a support level, and resumed the bullish trend that started in late September.
The euro was supported by the positive sentiment in the eurozone, as the economic activity indicators showed signs of improvement in September. The eurozone composite purchasing managers’ index (PMI) rose to 56.6 in September from 55.7 in August, beating market expectations of 56.3. The PMI signaled a robust expansion of the private sector activity, driven by strong growth in both manufacturing and services sectors.
The euro was also boosted by the hawkish stance of the European Central Bank (ECB), which announced last month that it would slow down its pandemic emergency purchase program (PEPP) in the fourth quarter, reflecting its confidence in the economic recovery and inflation outlook. The ECB also upgraded its growth and inflation forecasts for this year and next year, signaling that it was ready to start normalizing its monetary policy sooner than expected.
EURUSD Aims for 1.0655 Resistance Level
The EURUSD pair is expected to continue its bullish trend in the near term, as it targets testing the resistance level of 1.0655, which corresponds to the upper boundary of the bearish channel that has been containing the price action since February 2020. A break above this level would confirm a bullish breakout and open the door for further gains towards 1.08 and 1.09 levels.
However, the pair may face some resistance along the way, as the stochastic oscillator is approaching the overbought territory, indicating a possible loss of momentum. The pair may also encounter some profit-taking pressure after reaching new highs. Therefore, a pullback towards 1.05 or 1.04 levels cannot be ruled out before resuming the uptrend.
The bullish scenario will remain valid as long as the pair stays above 1.0515, which is a key support level and coincides with the 50-day EMA. A break below this level would invalidate the bullish outlook and signal a reversal of the trend, with potential targets at 1.0460 and 1.04 levels.