Overview: The release of many important economic data and testimony from FED Powell made this week a busy one for traders across the world. The market previously saw FED Powell’s remarks to the Senate Banking Committee as hawkish, and it has been likely that the Fed would raise the 5.10% median terminal rate it forecast in December, which is what drove an increase in bond yields and the US currency.
Other data released this week included increasing inflation in Switzerland, slightly improved Euro retail sales, a drop in Canada’s Ivey PMI, the expected RBA rate hike but with a dovish comment, the expected unchanged interest rate from the BoC, the drop in China’s inflation, the unchanged interest rate change from the BoJ, no change in the yield curve, and the upcoming Britain GDP numbers, Canada’s unemployment rate, and the US NFP report.
DXY
Beginning with the DXY, the dollar made a strong upward thrust early in the week as the FED In a hawkish remark to the Senate Banking Committee, Powell said that the FED would raise rates further if it presented with more strong economic data, like the February jobs report, and that it would raise the terminal rate, which was anticipated to be at 5.1% by the end of the year, in order to combat high inflation. However, We still have the forthcoming NFP at the time writing this post.
Looking at the chart, the DXY is still hovering over the 105.66 resistance level which is the high in early January despite Powell’s hawkish commentary. Also the DXY is stil in between the 200-day moving average (106.62) and the 50-day moving average (103.47). Also the stochastics is still showing extreme readings in the overbought territory for a quite a long time, but a divergence is printed recently which can signal weakening of the bullish pressure.
While we still have the NFP report, that could drive volatility in the market; a strong or more than expected report than what is the consensus (205K) could re-affirm the strong data that the FED had been presented with, which ultimately could strengthen the bias for further rate hikes, which translates to dollar strength, and the opposite could be true if the NFP report ends up worse than expected.
EURO
Next, we look at the Euro, which is actually a similar representation of the DXY, as we have the strong sell-off early in the week from Powell’s hawkish commentary and a price that is unable to break the January’s low at around the 1.0513 support level. Also, we have a price stuck between the 200-day moving average (1.0323) and the 50-day moving average (1.0719). A break of the January’s low would then open the doors for the Euro to trade lower to the 200-day moving average as a target; however, a break above the 50-day moving average would then open the doors for the Euro to trade to test the February’s high at the 1.1032 resistance level, but looking at the fundamentals, the odds could favor the bear side. Also, we have the stochastic printing a divergence in oversold territory, which signals the weakening of the bearish pressure as the market awaits the NFP numbers.
POUND
Looking at the pound, we have the pound make a strong move to the downside early on the week, but price found support at the support level at 1.1850 which is the lowest since November last year. Also price returns withing the range between the 200-day moving average (1.1897) and the 50-day moving average (1.2124) and the stochastic is still hovering above the oversold territory. A break of the 1.1850 support level could then open the doors for price to trade towards 1.1625 next support level.
YEN
The BoJ recently made no changes to its interest rate or yield curve with regard to the yen, which gave the market a mixed signal. At the same time, policymakers showed their concern for the Japanese economy by lowering their view of exports and production while holding their evaluation of the country’s overall economic health.
Looking at the charts, the Yen is still hovering below the 200-day moving average (137.47) which is the highest since December last year. At the same time, price is also testing a minor trendline of the bullish trend since February. The 50-day moving average is still relatively far away at 132.41, but the stochastic is coming out of the overbought territory which could give room for the bulls. Yet a break of the 200-day moving average could open the door for the yen to trade to November’s high at 142.21, while a break below could lead price to test the 50-day moving average.
CANADIAN DOLLAR
Taking a look at Canada, The BoC recently left the interest rate at 4.5% unchanged and stated that it would stay there as long as the economic situation continued to evolve in line with the most recent monetary report. This is interpreted as dovish for the market because the market reacted to what might have been the BoC’s end to its tightening cycle while the FED was still in the middle of their tightening cycle.
Looking at the charts, the Canadian dollar has been constantly under pressure since February and has been on the rise ever since. Recently, price just broke through December’s 2022 high, and price is reaching the 1.3893 resistance level. Both the 50-day moving average (1.3477) and the 200-day moving average (1.3310) are relatively far away from the current price.
For bulls a retracement back to 1.3694 would be favorable to anticipate for the next bullish leg to the upside and target October’s high.
AUSTRALIAN DOLLAR
Last we looked at the Australian dollar, Recently, the RBA raised their interest rate by 25 basis points, as expected. However, the RBA commented that they are approaching the end of their tightening policy as they believe that inflation has peaked according to the latest inflation readings, but further tightening would need to be supported by evidence from the economic data. With the dovish outlook from the RBA and then contrary to what the FED does, the Australian dollar plunges sharply.
Looking at the charts, price made a strong bearish move after the RBA interest rate decision and Powell’s comment, but price finds support at November’s 2022 low of 0.6584. While the 50-day moving average (0.6882) and the 200-day moving average (0.6775) are relatively still far away from the current price, they are starting to slope downward. The stochastic has also shown the price to be overstretched and hovering in oversold territory, which implies strong bearish pressure for the Australian dollar.
For sellers, a retracement back to either the 50-day moving average or to 0.6710 would be favorable to look for continuation. A break of November’s 2022 low could open the doors for price to target 0.6492 as the next support level.
