Overview: This week, the US had been showing signs of cooling job markets, as evidenced by the numbers from JOLTS job openings and the NFP from Friday. The cooling job markets did have an impact on the US PMI as demand and employment cooled down. While such economic data outcomes put a more bearish bias on the USD, the market interpreted the cooldown as a sign for the end of the FED’s tightening policy as the FED wanted to cool job markets in an effort to tame inflation.
Other economic data releases we had were the unchanged interest rate decision from the RBA and a surge in the balance of trade in Australia, a dropping balance of trade, steady unemployment, and rising PMI in Canada.
DXY
Starting with the US dollar index, the dollar managed to hold its ground in the last trading week despite the bearish trend since early March. After breaking lower from the 102 level, the DXY managed to regain its losses later in the week. Last Friday’s NFP sparked little volatility due to the Good Friday holiday with most of the financial centers celebrating Easter. However, the bearish trend remains intact, and if more evidence is presented that could lead to a more dovish FED outlook, it could take the DXY basket lower, at least to the 101 to 100 level, which is the lowest since February. Currently the DXY is trading below both the 50-day moving average (103.48) and the 200-day moving average (106.47), which could reaffirm the bearish bias in the USD.
EURO
As we look at the euro, it seems to struggle to reach the strong 1.10 key level despite the multiple attempts. While the euro still remains above the 50-day moving average (1.0733) and the 200-day moving average (1.0350), the market is still expecting further upward movement as the ECB is expected to raise its rate by 25 basis points in the next meeting since inflation in Europe is showing no signs of cooling down like in the US. Hence, a technical break of the 1.10 could spark the bullish trend, as the euro is trading in a broader ranging market at the moment.
POUND
Looking at the pound sterling, the GBP also shows a similar pattern to the Euro, where the GBP managed to break above the 1.25 level, but the bulls were disappointed as the price was unable to hold the 1.25 key level. With sticky high inflation remaining in the UK, markets are also expecting the BoE to raise its interest rate in its next meeting by 25 basis points. With the GBP trading above the 50-day moving average (1.2153) and the 200-day moving average (1.1899), it does put more weight on the bulls side. A break above Tuesday’s high at 1.2525 could motivate a further move to the upside, while a further move to the downside from Tuesday’s low at 1.2274 could call for a reassessment of market conditions.
YEN
The Japanese yen had been trading in a tight trading range between 130 and 133, which could be explained as the BOJ Kuroda term is coming to an end and to be replaced by Ueda. While markets expect the yield curve policy to be abandoned and even to adopt the IMF’s policy recommendation to target short-term maturity rather than the 10-year, For a technical play, I would wait for a break of the trading range for more of a directional bias due to a certain degree of uncertainty with the change in the BoJ governor and also because of the weakening US dollar. Currently the yen is trading below both the 50-day moving average (133.10) and the 200-day moving average (137.20), which puts more weight on the downside for the USD/JPY.
AUSTRALIAN DOLLAR
The Aussie had been trading in a more sideways manner from the last several trading sessions, but relatively remained in the trading range established on Monday between 0.6790 and 0.6650. The recent pause from the RBA in their monetary policy, which holds interest rates at 3.6%, does put a bearish weight on the Aussie, as may the peak of the RBA’s policy tightening. A technical break below Monday’s range would continue the bearish trend in the AUD and possibly target 0.6566, which is March’s low. The Aussie is currently trading below the 50-day moving average (0.6781) and the 200-day moving average (0.6748), which does emphasize the bearish bias in the Aussie. But with the USD also showing a bearish bias, trading opportunities in the AUD/USD could be limited but not in other Aussie pairs.
CANADIAN DOLLAR
The CAD also shows a similar situation to the Aussie, as the CAD is also trading inside Monday’s trading range between 1.3536 and 1.3411. While the recent Canada jobs report shows strong employment in the country, it seems the BoC view is to pause the interest rate at its current level while monitoring economic conditions. Recently, the CAD managed to make a retracement after the strong run from late March. Looks like the CAD is currently testing the 1.35 level and could provide a possible trend continuation play for a second leg run in the upcoming week if the USD remains bearish with a possible target at the 200-day moving average.
