A reversal of the US dollar (USD) outperformance of June and July is gathering pace as August sets in. Stepping back, the USD remains in a broader trading range, but it seems as though the next corrective leg lower within the range has begun. This is allowing other major forex to begin to recover against the USD. 

  • A new leg lower is taking hold within the broader range sees the USD setting up for a retreat to test the mid-range pivot band.
  • All major forex are now outperforming USD over the past two weeks.
  • What do major forex pairs need to do to continue improvement against the dollar?

USD reversing lower towards 90.25/90.60 on Dollar Index

Since breaking a six-week uptrend at the end of July, the USD has decisively lost ground and moved into reverse. In recent weeks we have seen Fed chair Powell pouring cold water on the expectations of any early taper (both in the Congressional testimonies and the FOMC press conference). Furthermore, yesterday’s ISM Manufacturing data suggests a peak has been seen in pricing pressures and sector recovery growth. The pressure on the Federal Reserve to tighten policy, first through tapering the emergency $120bn asset purchases has been reduced.

Treasury yields are continuing to slide and the Dollar Index is now corrective. The chart shows a move below 92.00 support on Dollar Index and a retreat into the band of support 90.25/90.60 could easily be seen. With the RSI consistently below 50 now, the negative momentum is building. 

Dollar Index  

Relative performance for major forex turning decisively around

On a one-month performance basis relative to the dollar we can see that the safe havens (JPY and CHF) have been consistently performing well, whilst the commodity currencies (AUD, NZD and CAD) have suffered. 

Relative Forex Performance

However, it is notable that whilst the safe-haven currencies are still performing well, the recovery in the commodity currencies is gathering pace. We look at the performance over the past two weeks to reflect this.

2 week relative forex performance

Notice how the performances of GBP, CAD and NZD are moving towards the top (aside from the consistently strong CHF). These are all countries with central banks that are seemingly pushing down the road in tightening monetary policy. With this positioning of central banks in mind, we can expect these currencies to continue to perform well during a time of USD correction. 

What do major forex pairs need to do to push ahead versus USD?

There are barriers to recovery on major forex though. That level of 92.25/90.60 on the Dollar Index is a key mid-range basis of support. Here is what it means for major forex pairs and what they need to do to continue a rally against the USD:

  • EUR/USD – testing key near term resistance around 1.1890/1.1910. A close above would open the key medium term pivot at 1.1975/1.1990 (very much the equivalent of Dollar Index retreating to 90.25.
  • GBP/USD – the recovery has tailed off slightly as the crucial resistance at 1.4000 has come into view. Bulls will be looking to hold on to 1.3875/1.3900 support to build again for a test of 1.4000.
  • USD/JPY – this could be the key mover as the band of support between 109.05/109.20 comes under pressure. A closing breakdown would be a key move, opening 108.30 and perhaps 107.45. Watch for the RSI below 40 to add confirmation.

USD/JPY technical analysis 

  • AUD/USD – the RBA was more hawkish than expected this morning and this has helped to strengthen AUD. A move above 0.7415 would open recovery prospects for a move at least to test 0.7500.
  • NZD/USD – recovery momentum is building, with the RSI above 50. A move above 0.7020 would help but the key move would be a close above 0.7045 which would open 0.7130.
  • USD/CAD – A CAD recovery has just faded in recent sessions, but if USD/CAD falters again around 1.2530 then another retreat back to test 1.2425 can set in. This is the key support of a head and shoulders neckline.

USD/CAD technical analysis

  • USD/CHF – the Swissy has been strengthening for a few weeks and is now testing a 0.9040 basis of support on USD/CHF. A decisive close below would open a deeper correction towards the key May/June support lows 0.8925/0.8940.


The US dollar is showing signs of continued correction. A test of mid-range support is looking increasingly likely as major currencies build recovery momentum.