Market sentiment turned cautious on Wednesday as global inflation concerns left investors on edge. Stocks were mixed, gold regained some positive momentum while oil prices fell after OPEC warned of impending oversupply. There was plenty of action in the currency space with the dollar, euro, and pound keeping traders well occupied. EURUSD saw a dramatic fall, sliding to its lowest level in 16 months while the Dollar Index (DXY) rallied to levels not seen in since July 2020. Sterling also caught our attention after data showed UK inflation surged to a 10-year high last month! In the emerging market arena, the Turkish Lira stole the spotlight by falling to a fresh record low against the dollar.
Today, our attention will be directed towards some G10 currencies and our tool of choice will be none other than technical analysis.
Dollar Strengthens Grip On Iron Throne
The mighty dollar has appreciated against almost every single G10 currency since the start of the week.
Strong US economic data, hawkish comments from Fed officials, and growing expectations over an earlier than expected rate hike have boosted buying sentiment towards the currency. Technicals swing in favour of bulls, especially after the DXY jumped to a fresh 16-month high this morning. A solid daily close above 96.00 may signal a move towards 96.50 and 97.18, respectively. Should bulls lack the strength to keep above 96.00, a decline back to 95.55 and 94.56 could be a possibility.
Pound experiencing a technical bounce?
Growing expectations over the Bank of England hiking interest rates in the face of rising inflation seem to be supporting Sterling. With inflation jumping to a 10 year high at 4.2% last month, this is more than double the BoE 2% target. Traders are now pricing a 57% chance of a rate hike in December and an 82% chance in February 2022.
Such expectations could push Sterling higher in the near term with 1.3500 acting as the first level of interest. A breakout above this point may open the doors towards 1.3570, 1.3600, and 1.3670. Should 1.3500 prove to be reliable resistance, a decline back towards 1.3410 and 1.3352 could be a possibility.
Euro poised for further downside
A lot is going on with the EURUSD. Prices are trading below the 20, 50, 100, and 200 SMA while the MACD is trading below zero. Should bears secure a solid daily close below 1.1300, this could trigger a decline towards 1.1200 and 1.1680. For bulls to jump back into the game, a strong daily close above 1.1420 may be required.
USDJPY back below 114.50
The USDJPY remains choppy on the daily charts. Prices have slipped back below 114.50 with bears eyeing 114.00. A strong daily close below 114.50 may signal a decline towards 113.30, 112.80, and 112.00. Should 114.00 prove to be reliable support, this could provide a platform for bulls to springboard prices back towards 114.50 and 116.00.
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