The US Dollar has shown remarkable strength recently, marking its seventh consecutive week of gains. This resurgence contrasts sharply with the Dollar’s weakness observed during the third quarter. The Dollar Index (DXY) is now approaching resistance levels, notably closing a gap that originated from last November’s Federal Open Market Committee (FOMC) meeting—a period when the Federal Reserve began to signal a potential shift from rate hikes to rate cuts. Concurrently, the EUR/USD pair is testing support, bringing the theme of two-year mean reversion into sharp focus for the upcoming week.
This article delves into the dynamics of the US Dollar and EUR/USD, particularly examining the critical level of 1.05 in the EUR/USD exchange rate – a level that resonates with discussions around 105 Euros To Usd. We will analyze the factors driving these currency movements and what they might imply for future trends.
The US Dollar’s Q4 Comeback
After experiencing weakness in the early months of the third quarter, the US Dollar has staged a significant comeback in Q4. This shift is largely attributed to a less dovish stance from the Federal Reserve. Interestingly, the Dollar did not weaken substantially following the Fed’s initial rate cut, as this move was widely anticipated, and expectations for further easing were already priced into the market. The Fed’s projections in September indicated a Fed Funds rate of around 3.1%-3.6% by the end of 2025 and 2.6%-3.6% by the end of 2026.
However, sellers failed to capitalize on this announcement, leading to the formation of a falling wedge pattern, which often signals a bullish reversal. True to form, the fourth quarter has witnessed a surge in Dollar buying, propelling the DXY to new yearly highs.
A key technical event this week was the closure of a gap dating back to last November, when the Fed first hinted at the conclusion of rate hikes. On November 1st, the DXY closed at 106.88 and opened the following day at 106.50, creating this gap.
This gap area, around 106.50, acted as resistance in April and May, forming a double top. While this level briefly stalled the recent rally on Wednesday, buyers remained persistent, driving the DXY to a fresh yearly high on Thursday.
It’s worth noting that the daily chart for DXY is showing RSI divergence, with a lower-high in RSI contrasting with a higher-high in price. This is the inverse of the RSI divergence observed in September, which preceded the falling wedge formation.
US Dollar Daily Price Chart
The Broader USD Range
Examining the weekly chart reveals a broader two-year range for the US Dollar. Several strong trends have encountered resistance in this zone. For example, the rally last summer lasted for 11 weeks before sellers intervened, and the rally in early 2023 also stalled around the 106.50 level.
US Dollar Weekly Chart
The crucial question now is whether USD bulls have the momentum to sustain this breakout. From a fundamental perspective, the argument for continued strength exists, as the FOMC is now signaling caution regarding future rate cuts. Furthermore, the Dollar Index is heavily influenced by the Euro, and the Eurozone economy faces the prospect of further rate cuts. This contrast in monetary policy outlooks further supports potential USD strength against the Euro. The EUR/USD pair is currently testing range support, a point we will explore further.
The two-year high for DXY is around 107.35, with the 107.00 level being tested multiple times this week. Jerome Powell’s recent comments have cast doubt on the December rate cut that had been largely priced into the markets, further impacting Dollar dynamics.
US Dollar Hourly Price Chart
EUR/USD Tests 1.0500 Support: What Does 105 Euros to USD Mean?
The EUR/USD pair experienced a rapid ascent to the 1.1200 level in August, where bullish momentum began to falter. This level proved to be a significant hurdle for buyers. Now, halfway through Q4, the pair has declined to test range support at the 1.0500 level. This level was last tested a year ago, where buyers emerged to defend the lows.
The 1.0500 level is particularly relevant when considering “105 euros to usd”. At an exchange rate of 1.0500, 1 euro would be equivalent to 1.05 US dollars. Therefore, *105 euros would be equivalent to approximately 110.25 US dollars (105 EUR 1.05 USD/EUR = 110.25 USD)**. The market’s focus on the 1.0500 level highlights its importance as a potential turning point for the EUR/USD exchange rate. If the EUR/USD pair breaks below 1.0500, it could signal further Euro weakness and a stronger dollar, potentially leading to a new lower range for the pair.
EUR/USD Weekly Chart
Potential Rebound or Further Decline for EUR/USD?
Currently, the 1.0500 level has held as support. Interestingly, this coincides with the DXY’s test of the 107.00 level. Furthermore, the EUR/USD daily chart is showing diverging RSI, with the RSI indicator bouncing back above the 30 level.
This technical setup could pave the way for tests of lower-high resistance in the 1.0611-1.0643 zone. Beyond this, levels at 1.0700 and 1.0750-1.0765 would become areas of interest for potential resistance. However, a break below 1.0500 would negate this bullish divergence and suggest further downside for the EUR/USD, strengthening the case for continued USD dominance.
EUR/USD Daily Chart
— written by James Stanley, Senior Strategist
