Overview: The US dollar ended the week higher after inflation edged lower to 4.9%, which shows inflation is heading in the right direction. The US PPI rose to 0.2%, which can boost the USD. However, the current market situation is on edge with the US debt ceiling, and banking stocks remain weak.
Other key economic releases this week are the rise in Australian business confidence, which remains bleak at 0, the BoE raising interest rates to 4.5% and signaling a potential for further rate hikes if inflation remains a problem, and the UK GDP MoM further contracting to -0.3%, which does show a slowing economy caused by the high cost of living in the UK.
DXY
First, looking at the US dollar index (DXY), we can see how the USD soared to 102.75 after a quite period of time where the DXY was complacent below the 102 level. The recent easing of inflation pressure in the US does spark some hope in the market for a potential rate cut by next year, which is what the FED has stated before. In the US, we also still have the debt ceiling, which remains on alert after negotiation talks were postponed to give more time for further discussion and can cause anxieties in the market. So we do have a high degree of uncertainty coming from the US at the moment.
From a technical perspective, the DXY managed to break out of the tight trading range formed in April and also make a breakout of the bearish trendline and the 50-day moving average. Such technical analysis can be perceived as a more bullish sign. Such a breakout does put the 103.40 previous resistance level to keep an eye on coming into the next trading week. Stochastic is also showing a change in the DXY momentum to the upside.
EURO
Similar to the DXY, the euro ended the week lower after topping near 1.1040, where it had failed to break previously. This week, we have little economic data coming from the euro zone that has moving market drivers, but we do have the fall in Germany’s industrial production to -3.4, which can be negative for the euro.
The euro managed to break below the 50-day moving average for the first time since last March, making the euro evolve into a more rangebound market. We may see further selling pressure in the euro coming into next week’s trading session as the stochastic is still showing strong bearish momentum. From a broader perspective, 1.0750 will be the median price of the broader trading range, at which we can expect some take profit to be made in the price level or at least act as a point of interest in the broader trading range.
POUND STERLING
The pound sterling also gave back most of its gain after making a high at 1.2679 and ending the week lower at 1.2446. After the expected 25 bps rate hike made by the BoE, the pound was experiencing high volatility and turned lower as the market perceived it as more “dovish” as the BoE revised their forecast for recession but still left a more stagnant impression of growth, and the BoE suggested an end to the monetary tightening if inflation pressure weakened. The monthly GDP dropped to -0.3%, while the yearly GDP contracted to 0.2%. So, we are seeing multiple bearish signals in the UK from a fundamental perspective.
From a technical point of view, the pound is testing the 1.2450 prior support level while still trading well above both the 50 and the 200-day moving averages. However, the stochastic is showing a potential for further selling in the pound after showing a bearish divergence. So there is a possibility for the pound to try to test the 50-day moving average in the upcoming trading week.
YEN
The Japanese yen ended the week slightly higher at 135.74 after benefiting from the US inflation and PPI numbers but still remaining in the trading range. This week, we had the BoJ minutes that show the BoJ suggesting to lighten their monetary easing efforts and positive signs of inflation pressure to ease up to their target range. We also have a growing current account in Japan, which can slightly boost the yen.
From a technical perspective, the Yen is still trading within the triangle pattern that is currently forming, and it seems the Yen is eager to make another test of the 137.50 key resistance level in the upcoming trading sessions after the Yen recently bounced off the 50-day moving average.
AUSTRALIAN DOLLAR
The Aussie dollar (AUD) ended the week lower after failing to trade above 0.6800, which put more pressure on the AUD. This week we have a few market-driven economic data releases from Australia, but this week, Australia’s NAB business confidence remains bleak after rising to 0. Also, building permits in Australia declined by 0.1% in March. Such data releases do put further pressure on the AUD.
From a technical perspective, the AUD rejects the 0.6800 key resistance level and trades lower into the well-established trading range. The nearest support level still remains at 0.6570, yet stochastic is showing for possible further selling pressure in the upcoming trading week.
CANADIAN DOLLAR
The Canadian dollar (CAD) traded higher at the end of the week, closing at 1.3556 after the CAD bottomed at 1.3314. This week’s economic data release from Canada had been relatively quiet, but with crude oil’s further declines, it has weighed on the CAD.
From a technical perspective, the CAD managed to break back above the 200-day moving average and made a strong buy-through on Friday. Currently, it seems like the CAD will be testing the bearish trendline, which helped in the formation of a descending triangle pattern and also aligned with the 50-day moving average in the broader picture. Stochastic, on the other hand, shows possible further bullish momentum coming into the CAD, which can be confirmed by a breakout of the bearish trendline and the 50-day moving average.
