Overview: The US dollar closed the week stronger as global markets caught up with the US debt ceiling discussions, which were put on hold when negotiators went out of a debt ceiling meeting, thus killing any chance of a deal. Also, while the FED is committed to lowering inflation, the current stress in the banking sector has caused the FED to consider rate hikes as unnecessary.
Other economic data releases this week include decreasing consumer confidence in Australia, RBA minutes showing a hawkish stance, unemployment back on the rise in the UK, an inflation rate to edge higher in Canada, falling US building permits, consumer confidence in the UK improving, and rising inflation in Japan’s economy.
Source: Trading Economics
DXY
The US dollar basket (DXY) managed to end the week higher. In the US, the debt ceiling still remains a major concern, and the recent comment made by FED Chairman Powell stating rate hikes are deemed unnecessary at the moment due to the recent stress in the banking sector We also have a rise in monthly US retail sales to 0.4% after previously declining by -0.7%. With the recent key fundamentals from the US, markets are currently pricing in rate cuts by the end of the year.
Looking from a technical perspective, the DXY is making a solid follow-through after the bearish trendline break, a break above the 50-day moving average, and a strong breakout after a quite long period of consolidation near the 101 key support level. However, stochastic is showing a possible peak in the upswing momentum and we could expect a retracement in the upcoming trading week. A key level of support to keep an eye on would be the 102.50 prior resistance turning into support, which aligns nicely with the trendline and the 50-day moving average.
EURO
In a similar fashion to the DXY, the euro had been trading lower as price previously failed to maintain above the 1.10 resistance level. While we don’t have any strong key economic data being released from the Euro area, the economic sentiment index in Germany recently fell significantly to -10.7; however, this does not seem to shake the hawkish ECB.
On a technical perspective, the euro managed to break below the 50-day moving average and is currently testing what could be the median of the broader trading range at 1.0750. From a classic mean reversion strategy, we could expect some sort of taking of profits near the support level, as the stochastic is also showing oversold readings. While the overall trend still remains to the upside by looking at how price is trading above the 200-day moving average, 1.0750 could be a key level to watch for a trend continuation setup, while a break further below would invalidate the idea.
YEN
The Japanese yen ended the week in green after trading higher at 137.915, which is the highest level since back in December. Recently, the Japanese GDP showed some moderate growth as annualized GDP grew to 1.6% and 0.4% on a quarterly basis. Also, Japan’s balance of trade improved quite significantly to -432.4 billion but still remains in deficit. Lastly, Japan’s inflation is back on the rise at 3.5%, while the BoJ still remains idle when it comes to its monetary policy.
From a technical perspective, the Yen managed to break above the 200-day moving average and recently tested 137.5 as the fresh new support level, which aligns nicely with the 200-day moving average. Looking at the stochastic, momentum seems to be topping as the indicator is starting to enter the overbought zone; however, let price be the determining factor. For bulls, 137.50 will be a key pivot point for whether the Yen will continue to trade higher.
AUSTRALIAN DOLLAR
The Aussie is still relatively remains in a broader trading range, but taking a peek at the RBA minutes this week shows how the central banks are keeping the doors open for further rate hikes if inflation remains a problem. Such comment can be perceive as a more hawkish which can be positive for the Aussie.
From a technical standpoint, the broader trading range between 0.6580 and 0.6800 remains a key support and resistance level, respectively. A clear break on either the support or resistance would be key for a clear directional bias for the Aussie, which may need a strong catalyst. Both moving averages are flattening out, which shows sideways market behavior. Also, the stochastic is near the oversold reading, which may signal a possible bounce when prices reach the support level.
CANADIAN DOLLAR
The Canadian dollar ended the week slightly lower but remains in its trading range. This week, inflation in Canada edged slightly higher to 4.4%. We also have oil prices rising and the BoC governor putting rate cuts out of the option. So we do have several positive fundamentals that can be positive for the Canadian dollar.
From a technical point of view, the Canadian dollar is currently testing a bearish trendline and the 50 day moving average while also forming the triangle pattern which may signal a potential breakout to occur in the near future. A further break above 1.35 would give a more bullish bias in the Canadian dollar to trade to the upside. While a failure of the break would then solidify the range bound market behavior as both the moving average are starting to converge.
Note: Due to life responsibility, I will be reducing the forum post or even change the style of the forum to a mini commentary at the moment until I have more free time for making again these kind of forum.
I hope you can find my past post helpful in how to see the markets and how certain fundamentals can affect the currency markets, and also feeling the market sentiment. I do however still be slightly active in my twitter for some mini post so you can follow for more which you can find the link in my Bio. I wish you all happy trading and hopefully see you guys soon 