Overview: The US dollar remains in a tight trading range despite the falling PCE price index to 4.2% from 5.1%, showing easing inflation. The Japanese Yen also slumps as the new BoJ governor, Ueda, shows dovish sentiment and takes steps to monitor Japan’s monetary policy, which can take up to 1.5 years while monitoring the economic impact of the COVID pandemic.
Other economic data releases show a rising business climate in Germany, falling inflation to 7% in Australia, a US GDP growth rate of an annualized 1.1% in Q1 2023, a Europe GDP growth rate of an annualized 1.3%, falling inflation to 7.2% in Germany, and the Core PCE price index remaining unchanged at 3%.
DXY
Taking a look at the US dollar basket, the DXY had remained silent as it was contained in a relatively tight trading range established on Monday. While we have several US economic data releases and the key headlights at the Core PCE price index, which is the FED-favored inflation metrics, remain unchanged, it did not spark high volatility in the DXY. The lack of volatility in the US dollar can be explained as the market is waiting for the FED meetings that are going to be held next week, and the market is pricing in an 83% chance of the FED hiking interest rates by 25 basis points.
On the technical perspective, the 101 support level will still remain a key pivot point to watch as we come into the next trading week, and the 50-day moving average (DMA) is the resistance level that can come into play as well. Currently, the DXY is still trading below both the 50 and the 200 DMA, which still puts bearish market expectations for the US dollar.
EURO
The euro has also been in a similar situation to the DXY, as the euro is struggling near the 1.10 key level and to remain in the tight trading range established on Monday with no clear directional bias. As we have slowing economic growth from the euro annual GDP at 1.3%, the quarterly GDP also shows a minor growth in the euro annual GDP at 0.1%, which can be disappointing. However, ECB officials remain committed to their calls for rate hikes at their next monetary policy meeting, which can be positive for the euro.
From a technical perspective, the euro is currently at a key pivot point, and it seems the bullish momentum from mid-March is beginning to fade. Also, a look at the stochastic shows a bearish divergence, which supports the idea of fading bull momentum, but a break below 1.0915 could confirm the fading bullish momentum. However, for the bullish stance to continue, the euro needs to break above the 1.10 level. Currently, the euro is trading above the 50 and the 200 DMA, which shows bullish market expectations for the euro.
POUND
The pound sterling managed to continue on its bull rally as the UK had few economic data releases this week, and the rally supports the idea of market expectation for the BoE to continue raising rates to tame down inflation as inflation in the UK shows no sign of easing and remains above 10%, which is the highest among the major currencies.
From a technical perspective, the pound managed to trade above 1.2546, the highest since June 2022. Such a bullish break could open the doors for the pound to trade at 1.30 in the long term. Currently, the pound is trading above both the 50 and 200 DMAs, which shows bullish market expectations for the pound and stochastic to show possible further upward momentum.
YEN
This week, we have the first BoJ meeting with the new governor, Ueda, which has made the BoJ take a more flexible stance as they remove guidance about expecting interest rates to “remain at their present or lower levels”. Also, Ueda mentioned that the BoJ will monitor monetary policy but will take about 1.5 years, which many believe is too long, and the market perceived it as a more dovish sign, leading to the slump of the Japanese yen.
On a technical perspective, the yen is being pushed to the 136 price level, which is the highest since late March, and it seems eager to test the 200 DMA or the 137 price level. The yen managed to breakout of the triangle pattern, which could give more weight to the upside momentum. Also, the 135 level will be a key support level for buyers coming into the next trading week.
AUSTRALIAN DOLLAR
The Australian dollar has traded lower this week as we have inflation numbers falling to 7%, which does put more emphasis on the end of the RBA’s tightening policy and does put pressure on the Australian dollar.
From a technical standpoint, the Aussie managed to break below a bear flag pattern and managed to hold below the pattern, which hence supports the bearish bias for the Aussie dollar. However, on Friday, the Aussie took back some of its losses, but a further break below 0.6573 could further confirm the bearish continuation to the downside with a possible long-term target at the 0.64 support level. Also, currently, the Aussie is trading both below the 50 and the 200 DMA, which shows bearish market expectations for the Aussie dollar.
CANADIAN DOLLAR
The Canadian dollar managed to rally to 1.3651 only to give back most of its gains on Friday, closing at 1.3542, which correlates nicely with crude oil. As this week we have no key economic data coming from Canada, fundamentals still hold a negative bias on the Canadian dollar as inflation numbers in Canada fell from last week’s data.
From a technical standpoint, the Canadian dollar rejected the 50 DMA at 1.3589 after only holding briefly above the 50 DMA. However, 1.3525 will be a key support level coming into play coming into the next trading week. The Canadian dollar is currently trading above the 200 DMA but below the 50 DMA, and the stochastic is showing an overbought reading, which could suggest potential momentum to the downside is possible in the upcoming trading week.
