Overview: The market was quite on “fire” this week as fear spiked over the SVB and Credit Suisse banking issues as the market became risk averse across the board in the financial markets. We had a sharp fall-off in US bond yields, a tanking stock market, soaring gold prices, and safe-haven currencies strengthening.
Other key economic data released this week includes falling business confidence in Australia, an unchanged unemployment rate in the U.K., a falling US inflation rate, falling US PPI and retail sales, and a 50 basis point expected interest rate hike from the ECB. On the time writing this forum we still have the Euro inflation rate and the Michigan consumer sentiment (prel).
DXY
The DXY is currently under a strong bearish bias as of the start of the week, with strong sell-offs as the market prices in the FED to start making interest rate cuts as early as July 2022. Followed by falling inflation to 6% and core inflation to 5.5%, the market assumed that inflation had peaked and foresee an end to the FED tightening cycle. However, on Wednesday, the dollar made a strong upthrust as fear spiked throughout the market in regards to the SVB and Credit Suisse issues, which created a short panic in the market and led the market to become more risk-averse.
source: cmegroup
Looking at the technical aspect, DXY is still contained within the 50-day moving average (103.45) and the 200-day moving average (106.65). As price previously failed to break above January’s high, the DXY is having more and more bearish pressure come in from a fundamental standpoint. A level to keep an eye on is the 50-day moving average, as a break below it could mean even further bearish bias for the US dollar and possibly a trade to February’s low. The stochastic is currently at the bottom side of the neutral area.
EURO
While markets were doubting that the ECB would deliver a 50 bps rate hike due to the current banking situation, the ECB still raised the interest rate by 50 bps, which further pushed borrowing costs to the highest since 2008. But looking at the EUR/USD previously on Thursday, the rate hike sparks little volatility.
Looking at the technical side, the euro is currently drifting sideways, which started in February. The high of the range is still at 1.0760, while the low of the range is at the 1.05 price level. The 50-day moving average (1.0726) is nicely aligned with the high of the ranging market, while the 200-day moving average (1.0324) is still relatively far away from the current price and well below the trading range. The stochastic is still in the neutral zone and pointing downward. A break above or below the trading range could show where the market is likely to go at the moment, which may require a strong fundamental driver.
POUND
The pound sterling, while still drifting sideways in the broader range between 1.2441 and 1.1810 as the high and low, respectively, has been gaining some bullish momentum as the dollar weakens. Currently the pound is testing the 50-day moving average (1.2137), which nicely aligns with March’s high. With the dollar weakening, a break of the 50-day moving average could spark bullish momentum for the pound and then target the high of the trading range. The 200-day moving average (1.1888) is relatively below current price, and the stochastic is currently showing signs of strong bullish pressure as it maintains above 50 and just below the overbought territory.
YEN
The Japanese Yen has been trading stronger ever since the USD/JPY pair failed to break the 200-day moving average. Recently, price had been testing the 50-day moving average, and price managed to bounce off the moving average. With Japanese exports increasing on a year-over-year basis for the first time since last September and with the bearish fundamentals coming from the US, this could spark further bearishness in the USD/JPY pair. With that being said, a break of the 50-day moving average (132.54) could be favorable for the sell side, which can open the doors for the yen to trade at 130.5. The 200-day moving average (137.46) still shows a long-term bearish trend and is relatively far from the current price. The stochastic also shows strong bearish pressure in the currency pair as it maintains below the 50 level and hovers above the oversold territory.
AUSTRALIAN DOLLAR
The Australian dollar managed to hold its ground at November’s 2022 low of 0.6583 after the strong bearish trend from February. Price recently broke the bearish trendline, somewhat forming a double bottom. While the 50-day moving average (0.6869) and the 200-day moving average (0.6763) are still pointing downwardly, we could see the Aussie test the 50-day moving average in the upcoming week. The stochastic came out of oversold territory, which can signal bullish momentum coming into the market.
CANADIAN DOLLAR
While the USD/CAD made quite a rally last month due to the dovish outlook from the BoC and breaking above December’s 2022 high, it looks like price has only a little time above the price level as the US dollar weakens due to the current bearish fundamental outlook in the meantime. The 50-day moving average (1.3494) and the 200-day moving average (1.3337) are still pointing towards a bullish trend and relatively far from the current price. The stochastic came out of overbought territory, which shows bearish pressure coming into the market. A break below 1.3692 could further confirm the bearishness in the currency pair, which caused price to re-enter the previous trading range.
