Talking Points:
- The DXY[1] Index has lost ground for three consecutive days, and is quickly approaching the bullish outside engulfing bar low from July 26.
- Higher inflationary pressures are lifting the Euro[2], offsetting concerns surrounding weaker than expected Q2'18 growth figures.
- Retail traders[3] are net-short EUR/USD[4] and net-long GBP/USD[5], leaving a mixed outlook for the US Dollar..
See our longer-term forecasts for the US Dollar, Euro, British Pound[6] and more with the DailyFX Trading Guides[7]
The US Dollar (via the DXY Index) is dropping for a third consecutive day as attention has momentarily shifted away from the Trump administration's ongoing trade wars and instead to central bank policy elsewhere.
With the Bank of Japan downgrading its inflation forecasts for fiscal years 2019 and 2020, the Japanese Yen[8] has suffered as the era of extraordinary loose monetary policy is set to continue for the next few years - a shift in tone from just a few months ago when policy officials were discussing winding down their extraordinary efforts around the start of fiscal year 2019 (next April).
The tweaks made under BOJ Governor Kuroda's watch suggest that in a world where central banks are normalizing policy more and more, the Japanese Yen will remain a funding and safe haven currency amid interest rate differentials moving further out of its favor.
But the gains seen by USD/JPY[9] overnight have been neutralized and then some by the rally in EUR/USD, leading the DXY Index lower once again. Even as Q2'18 Eurozone GDP missed expectations, the unexpected
