Overview: This week the market was in a high-event-risk week as numerous high-impact economic data releases were made. This week’s spotlight was on the FED interest rate decision that was raised by 25 bps and Powell’s comments signaling a pause in monetary tightening and for the FED to switch to a data-dependent stance. The US dollar, however, remains contained in the trading range but ends the week in red.
Other economic data released shows that consumer confidence is rising in Japan. Raising US manufacturing PMI, the RBA 25 bps rate hike, inflation to edge higher in Europe at 7%, lower JOLTS jobs opening in the US, a strong labor market in Europe, the ECB 25 bps rate hike, and US NFP numbers that beat market expectations significantly
Source: Trading economics
DXY
The US dollar basket (DXY) still remains in a relatively tight trading range that has been established since the early part of April. Despite all of the high event risk we had this week, such as the FED interest rate decision and Powell’s monetary pause comment, the market perceives it as dovish and even expects rate cuts, which is against the FED’s expectation. JOLTS job openings and even the strong NFP numbers still seem unable to spark a clear directional move in the US dollar.
From a technical perspective, the 100.84 support level still remains a key pivot point to keep an eye on; a further break below the support level could further put the US dollar under pressure for more selling. Also, the DXY is still trading below both the 50-day moving average (DMA) and the 200-day DMA. However, 102.80 shows to be a nice resistance level for the bulls to break for a bullish trend to be considered in the making, as it aligns nicely with the trendline and the 50 DMA. So we could expect a breakout in the upcoming trading week as the DXY prints out a long-term bearish triangle pattern.
EURO
Similar to the DXY, the Euro has also been contained in a tight trading range since mid-April as it struggles at the 1.1040 resistance level, which was the highest level in February. This week we have the expected 25 bps rate hike from the ECB, and the ECB also signaled its expectation for another rate hike in the next meeting and its clear intention of not pausing interest rates. Such fundamentals can be perceived as positive for the euro.
From a technical perspective, the 1.1040 level still holds a crucial pivot point for the euro, while the nearest support can be found near the 1.09 price level. The euro is still trading above the 50 and the 200 DMA, which still puts bullish expectations in the euro. However, the stochastic is printing bearish divergence near the 1.1040 level, where the euro is currently struggling, which raises the possibility of a retracement in the upcoming trading week. A clear break of the 1.1040 will be positive for the already established bullish trend, while a break below the 1.0900 could make the 50 DMA the next level of interest.
POUND
The pound sterling managed to maintain above 1.25, which is the highest level since early June 2022. While we have lacked high-impact economic data releases from the UK, the BoE meeting is coming next week, and with the last inflation readings showing inflation remains high and above 10%, markets are expecting a 25 bps rate hike, which can be positive for the pound sterling.
From a technical perspective, the break above 1.2450 does put the bullish trend intact and could open doors for the pound to trade to 1.30 as a strong psychological level, which can act as a key resistance level. The pound sterling is still currently trading above the 50 and the 200 DMA, which can show bullish market expectations for the pound sterling. The stochastic is well below the oversold reading and still points for a possible further upward move in the pound sterling. However, with the next BoE meeting next week, the market will be focusing on the BoE’s comments on what to expect ahead in regards to monetary policy in the UK.
YEN
The Japanese yen ended the week lower as the yen was unable to break the 137.50 key resistance level as a result of the dovish BoJ that we had last week. This week we have a raise in consumer confidence in Japan, while manufacturing PMI edges higher but still remains below the 50 boom/bust level. With the mixed fundamentals from Japan, this may explain the lack of catalyst needed for the yen to trade above 137.50.
From a technical standpoint, 137.50 still remains a key pivot point as the resistance level aligns nicely with the 200 DMA coming into the next trading week. Currently, the yen is testing the 50 DMA as the support level and managed to regain some of the losses on Friday. The stochastic, on the other hand, shows a bearish divergence in price and signals a possible retracement, which could make the bullish trendline from January the next key point of interest for a deeper retracement play.
AUSTRALIAN DOLLAR
The Australian dollar (AUD) rallied strongly this week after testing the 0.6570 support level, yet it is still contained within the broader trading range established since April. The surprise 25 bps rate hike made by the RBA caused the AUD to rally strongly across the AUD currency pairs, and the RBA further signaled possible further rate hikes, which is positive for the AUD. We also have the rise in retail sales in Australia; the Australia service PMI also soared above the 50 level, which further boosted the AUD.
From a technical perspective, the AUD is still relatively moving in a sideways direction, with no clear directional bias at the given moment. The AUD managed to break above both the 50 and the 200 DMA, respectively, which shows the bullishness of this week’s fundamentals. However, 0.68 will remain a key resistance level for trend determination, and it seems the AUD is eager to test the level after the way it rallied this week. The stochastic also agrees with a possible further upward move in the AUD in the next trading week. A technical break above the 0.68 level would spark a potential bull trend in the AUD pair; however, a rejection does solidify the sideways trading environment even further.
CANADIAN DOLLAR
The Canadian dollar (CAD) made a strong move to 1.3374 after rejecting the 1.3650 resistance level. This week, we have a drop in the Ivey PMI and a hawkish comment from the BoC governor that signal a possible rate hike if inflation remains a problem, which can be positive for the CAD. We also have a raise in the manufacturing PMI in Canada to reach above 50, which can further boost the CAD.
From a technical perspective, the CAD seems eager to test the 1.33 support level after making a strong break below the 200 DMA and putting the CAD in a position below both the 50 and the 200 DMA. With the CAD trading below both the DMAs, it does put more weight on the downsideafter making a strong break below the 200 DMA and putting the CAD in a position below both the 50 and the 200 DMA. With the CAD trading below both the DMAs, it does put more weight on the downside. The stochastic also agrees with the bearish sentiment, signaling possible further downward momentum in the CAD in the next trading week. A technical break below 1.33 will put more pressure on the CAD, while a bounce above 1.33 would suggest a possible retracement from the heavy selling from last Friday.
