Overview: This week’s trading volatility had been relatively decent with the lack of a strong economy data release and with the easing of the banking stress caused by the SVB and Credit Suisse. The US dollar held firm this week after regaining some of its losses throughout the trading week.
While most economic data release was mostly tier 2 data, on Friday we did have some key economic data release with the easing inflation and stable unemployment in the Euro and also the easing US core PCE price index.
DXY
Starting with the US dollar index, the dollar had been quite devastated for the past several weeks as market pricing in the end of the FED’s tightening policy changed despite Powell hinting at one last hike in the next meeting. Recently, the core PCE price index, which is the FED’s preferred inflation measure, slowed down by 0.3% from a previous 0.5%. The drop in the US PCE does show inflation to be easing, which can reaffirm the market expectation of a dovish FED in the future, which can be interpreted as dollar negative.
Looking at the technical side, the DXY managed to hold the 102 minor support level and is trading below the 50-day moving average (103.48) and the 200-day moving average (106.55). Major resistance can be found at the 50-day moving average, while the next major support level will be around 101.25, which is the lowest level since May 2022. The stochastics do show the price to be quite stretched and hovering just in the oversold zone.
With the recent easing of inflation from the PCE and bearish market expectations for the USD, the dollar basket may trade lower in the next coming trading session, and bears may target May 2022.
EURO
The euro managed to bounce off the 50-day moving average (1.0730) at the start of the week, only to find resistance at 1.0933. Currently the euro is trading above the 50-day moving average and the 200-day moving average (1.0340), which imply a long-term bullish bias for the euro. The stochastic is currently hovering below the overbought zone.
With the bearish bias coming from the US dollar, a technical break of the minor resistance at 1.0933 can open the door for the euro to test the 1.10 major resistance level. While a retracement back to 1.0750 could attract more buyers to push the euro higher.
POUND
Similarly, the pound managed to bounce off the 1.22 minor support level, which aligns nicely with the 50-day moving average (1.2146) just below it. The pound is currently at the upper side of the wide trading range and looks eager to test the extreme of the major resistance level at around 1.2458. Currently, price is trading above the 50-day moving average and the 200-day moving average (1.1892), while the stochastic is showing price to be stretched and in the overbought zone.
To confirm the bearish bias from the USD, a clear technical break of the 1.2458 or even 1.25 should be presented because of the strong rangebound trading environment since December 2022. Otherwise, a rejection of the major key level and the stochastic crossover back to the neutral zone could hold the trading range intact.
YEN
The yen recently managed to bounce off the 130 support level, which is a strong psychological level and the lowest since February. The yen is currently trading near the 50-day moving average (132.92) and below the 200-day moving average (137.30). From a technical aspect, the Yen is showing to be a possible candidate for a trend continuation play in the upcoming trading sessions. While the stochastic just came out of the oversold zone.
A strong rejection of the 50-day moving average could lead the Yen to try to test again the 130 support level, and a break of the 130 support level could open the way for the Yen to trade to 127.21, the lowest since January.
AUSTRALIAN DOLLAR
The AUD has been trading sideways for the last several trading sessions. The AUD managed to find support at 0.6575, which is the lowest since November 2022. The AUD is currently trading below the 50-day moving average (0.6817) and the 200-day moving average (0.6749), but the moving averages are not aligned and may show a shift in the current trend in the upcoming trading sessions. The stochastic, on the other hand, is still in the neutral zone and shows possible further bullish momentum as price was previously unable to make a lower low in the bearish market structure.
The AUD is currently testing the 200-day moving average, while minor support can be found at 0.622 and key support at 0.6575. With the ranging market behavior in the AUD, a technical break above the 200-day moving average and the 0.6775 could present a change in the trend in the AUD. A further break below 0.6575 would resume the bearish trend in the AUD. However, the odds seem to be breaking to the upside as long as the negative bias in the USD remains intact.
CANADIAN DOLLAR
The CAD had been the better-performing of the major currency pairs, which shows the weakness of the US dollar and is backed up by rising oil prices. The CAD managed to break the 1.3650 after price topping at 1.3876 followed by a lower high, which shows weakening bulls. The CAD managed to break below the 50-day moving average (1.3541) for the first time since February while still trading above the 200-day moving average (1.3372), and the stochastic has entered the oversold zone.
The CAD managed to reach the 1.35 support level, and with the stochastic entering the oversold zone, it signals a possibility for the CAD to bounce off the 1.35 support level in the upcoming trading sessions. It is expected that some traders will take profits from the bears at the 1.35 level, and a retracement to 1.36 could attract trend continuation play with the bearish US dollar. A further break of the 1.35 support level would then put the 200-day moving average in play for the next target for the CAD .
