Major currency pairs have been consolidating on Friday amid a lack of fresh catalysts and news. The risk-off tone has abated but investors refrain from more active buying and remain cautious as any negative news headline could easily derail the emerging optimism in the global markets.
As such, the dollar is trading under just a mild selling pressure and signals it is not yet ready for a deeper correction. For a more aggressive decline in the USD index, a robust and sustainable risk-on sentiment is needed. There is a risk that Trump’s aggressive behavior will prevent easing of trade tensions between the US and China, even as the two countries are planning to resume the talks next week.
So the greenback will likely remain within its bullish trend, at least as long as the risks stemming from a trade war persist. Besides, the dollar is supported by further Fed rates hiking and rising inflation. Against this backdrop, the EURUSD pair, which is attempting to challenge the 1.14 area, remains attractive to sell on rallies and will likely fail to stage a sustainable recovery, at least in the short term.
By Helen Rush
Senior Analyst at Capital Markets