Overview: This week’s trading session saw the dollar index make a new low for the year and regain some of the ground it lost on Thursday. This week, the spotlight was on the US economic data, such as the drop in inflation, which was also followed by a significant drop in the PPI and retail sales. With the hawkish comment from the FOMC minutes, the market is pricing in a 77% chance of a rate hike in the next FED meeting.
Other economic data show a rise in Japan and Australia’s consumer confidence, stagnant growth in the UK’s GDP, and a drop in Germany’s inflation.
DXY
The dollar index managed to make a new low for the year, test the low from February, and bounce back and regain some of the losses on Thursday. Looking at the technical aspect, the US dollar still remains bearish as its price remains below the 50-day moving average (DMA) and the 200-DMA. Also, we still see the DXY making bearish market structure. As the US inflation drops to 5%, which does show signs of easing inflation, the softening in the PPI and retail sales does raise concerns about the outlook for the US economy. It is also worth mentioning that the market is still somehow affected by the stress in the US banking system from last month.
From a technical perspective, we may expect a retracement as the DXY tests the 101.80 support level, while resistance can be found at 101.42 and 102.75, respectively. The stochastic is showing neutral readings in the DXY, so further upward momentum is still possible.
EURO
Looking at the euro, it managed to break above 1.10 for the first time after being contained in a wide trading range. Similar to the DXY, as the euro made a new high for the year, it managed to give back its gain on Friday and re-enter the trading range. However, on Friday, we had the hawkish comment from Pierre Wunsch that highlighted the urgency for the ECB to continue its rate hike. Such comments can be found as expected due to the fact that inflation in Europe shows no sign of easing unlike in the US and also due to market expectations of rate cuts in the US in mid-year. With that in mind, a further rise in the euro does seem possible.
From a technical aspect, the euro is still trading above the 50 and the 200 DMA, which supports the bullish bias in the euro, and a trendline support can be found just around 1.0910. The stochastic is showing neutral readings but just hovering under the overbought zone. A nice pullback setup could be found at the trendline support for a deeper pullback and with expectation of a move higher in the euro or at the 1.0950 support level.
POUND
The pound has recently been struggling inside a range formed since last week and a key resistance level since December 2022. While the latest data for the UK shows stagnant GDP in February at 0%, this does put a bad outlook on the UK’s economy. While the UK’s inflation remains high and the easing of inflation still remains stagnant, this does raise expectations of a rate hike from the BoE.
Looking at the technical aspect, the pound is still trading above the 50 and the 200 DMA and seems to be making a double top formation inside of the range from last week. Such a pattern could give an early sign of a possible retracement in the pound coming into the next trading week. 1.2344 and 1.22 will act as support levels, and 1.2540 will be the nearest resistance level to keep an eye on. The stochastic is also showing neutral readings but hovering below the overbought zone.
YEN
The Japanese yen has been struggling for the past few weeks, trading between 134 and 130. With the lack of economic data coming from Japan, we only had a rise in consumer confidence in Japan from 31.1 to 33.9; however, such data may not be enough to spark some high volatility in the market or give a stronger insight into Japan’s economy.
Looking at the technical aspect, the yen managed to break above the 50 DMA while still trading below the 200 DMA. Currently the yen is still testing the 134 level and forming a triangle pattern, which does show a possible breakout in the next trading week. Looking at the technical aspect, the breakout is more leaned towards the upside as the yen ended the week with a strong bullish engulfing. A break of the 134 level could open the door for the yen to trade towards 137.75, while a break to the downside of the triangle pattern would open the doors for the yen to test again the 130 support level.
AUSTRALIAN DOLLAR
The Aussie had also been contained in a trading range that had been established since last March and is currently testing the resistance near 0.6787. When it comes to Australia, this week we had a significant rise in the Westpac Consumer Confidence Index from 78.5 to 85.8; also, the NAB Business Confidence remained weak but rose from -4 to -1. Also, unemployment in Australia remains stable at 3.5%, which shows a strong labor market in the country. But despite all of these good economic data releases, it seems the Australian dollar remains in the trading range with no clear trend in place.
As we look at the technical aspect, the Aussie managed to break above the 50 and the 200 DMA, but only to be sold off as price respected the 0.6787 resistance level. The stochastic is still showing neutral readings and is in the middle of the range, which does indicate the possibility of a further move in either direction. It seems there is no clear direction in the Aussie for the moment, but a range trading strategy could be appropriate in this situation. A further break of either 0.6787 or 0.6567 would give a more directional bias.
CANADIAN DOLLAR
When we last looked at the CAD, it had been the top performer among the major pairs for the last couple of trading weeks as the US dollar weakened. While there was a lack of economic data releases in Canada, however, the CAD was able to take advantage of the weakening US dollar and the rise in oil prices that was sparked by the surprise cut from OPEC.
On a technical scale, the CAD managed to break below the 200 DMA for the first time since May 2022 and had been in a strong downtrend that started in late March. A retracement back to 1.34 could offer a continuation play to the downside, and possibly the CAD could try to test the 1.3250 support level. The stochastic is currently showing a neutral reading after spending some time in the oversold zone, and a further move to the downside remains possible.
