The Analytical Overview of the Main Currency Pairs on 2023.02.06

The EUR/USD currency pair

• Prev Open: 1.0908
• Prev Close: 1.0792
• % chg. over the last day: -1.07 %

According to the US Bureau of Labor Statistics, total Nonfarm Payrolls rose by 517K in January (forecast 190K, forecast 223K), and the unemployment rate declined to 3.4% (forecast 3.6%, forecast 3.5%). The very strong labor market data leaves more leeway for the US Federal Reserve to keep raising rates. This brought panic back into the market as investors rushed to sell stocks and buy dollars. Financial markets are currently pricing in another 25 basis point rate hike at the US Fed’s March meeting and another 50 basis point hike from the ECB. In the medium term, a reduction in the interest rate spread should play for the European currency’s strengthening.

• Support levels: 1.0781, 1.0710, 1.0650, 1.0597
• Resistance levels: 1.0838, 1.0906, 1.0926, 1.0967, 1.1017, 1.1077

The trend on the EUR/USD currency pair on the hourly time frame has changed to bearish. The price broke through the priority change level and consolidated lower. The MACD indicator is deeply negative, with no signs of a reversal. Under such market conditions, it is best to wait for a small pullback as the price has deviated strongly from the moving averages. Buy trades are best considered from the support level of 1.0781, but confirmation in the form of a reversal on the lower time frames is needed. Sell deals can be considered from the resistance level of 1.0838, but it is also better with confirmation in the form of a reverse initiative.

Alternative scenario: if the price breaks down through the resistance level of 1.0967 and fixes above it, the uptrend will likely resume.

• – Eurozone Retail Sales (m/m) at 12:00 (GMT+2);
• – ECB President Lagarde’s Speech at 20:00 (GMT+2).

The GBP/USD currency pair

• Prev Open: 1.2224
• Prev Close: 1.2052
• % chg. over the last day: -1.43 %

The Bank of England said last week that the UK is still set for a recession this year, but it will probably not be as deep as previously feared because of falling energy prices and weaker market interest rate expectations. Analysts believe that the current rate level of 4% may be the cap rate for the UK. The Monetary Policy Committee of England (MPC) abandoned the wording “may require a further increase in the bank rate,” which was constantly present in the meeting minutes. But everything will depend on the next inflation and GDP data. If inflation proves to be more robust and widespread, the Bank of England may hold another rate hike.

• Support levels: 1.2035, 1.2000, 1.1930
• Resistance levels: 1.2182, 1.2228, 1.2311, 1.2416

From the technical point of view, the trend on the GBP/USD currency pair on the hourly time frame has changed to bearish. The price declined sharply on the news on Friday and consolidated below the priority change level. The MACD indicator is in the negative zone with no signs of a reversal. Under such market conditions, it is better to look for buy trades on intraday time frames from the support level of 1.2000, but with confirmation in the form of a reverse initiative. It is best to look for sell deals after the pullback, as the price has deviated strongly from the moving averages. The best resistance levels are 1.2147 and 1.2228, but it is also better with a confirmation in the form of the reverse initiative.

Alternative scenario: if the price breaks out through the 1.2416 resistance level and fixes above it, the uptrend will likely resume.

• – UK Construction PMI (m/m) at 11:30 (GMT+2).

The USD/JPY currency pair

• Prev Open: 128.65
• Prev Close: 131.18
• % chg. over the last day: +1.96 %

A sharp jump in the dollar index on the back of strong US labor market data led to an increase in USD/JPY quotes on Friday. The US Fed has more leeway to raise rates further, while the Bank of Japan continues to hold rates at negative levels and maintain its stimulative policy, even though inflation in the country is at a 42-year high and is expected to rise further. An increase in the interest rate differential will have a negative impact on the Japanese Yen, with Japan’s GDP growth not being able to offset this impact.

• Support levels: 129.98, 129.19, 129.04, 128.16
• Resistance levels: 132.37, 132.95, 133.23

From the technical point of view, the medium-term trend on the currency pair USD/JPY has changed to bullish. The price strongly deviated from the moving averages. The MACD indicator is in the positive zone with signs of overbought but without divergence. It is better to look for buy trades after a slight correction to the support levels in the “discount” zone — 129.98 or 129.19, but only with confirmation on the lower time frames. At a minimum, it is necessary to wait for the correction to the level of 131.10. Sell deals can be sought after the impulse return of the price below the level of 131.58, which will form a false breakout area above the level.

Alternative scenario: If the price fixes below the support level of 128.16, the downtrend will be renewed with a high probability.

The USD/CAD currency pair

• Prev Open: 1.3314
• Prev Close: 1.3389
• % chg. over the last day: +0.64 %

The Canadian dollar is a commodity currency and is dependent on instruments such as the dollar index and oil. Oil prices dropped sharply on Friday on the back of a stronger dollar index. The market is also pressured by sanctions on Russian oil products, which came into force on February 5. At the same time, traders should not forget about oil reserves, which have reached their highest level since the summer of 2021. What’s next? China’s opening continues. Hence traders should expect demand to increase. Russian oil will be limited in price, and the amount of Russian oil on the market will decrease. All this might lead to a new jump in oil prices, but only after the strategic reserves start to decline.

• Support levels: 1.3333, 1.3281, 1.3212
• Resistance levels: 1.3424, 1.3445, 1.3496, 1.3520, 1.3554, 1.3595

From the point of view of technical analysis, the trend on the USD/CAD currency pair is bearish. But the price is close to the priority change level, and the buyers prevail inside the day. The MACD indicator is in the positive zone, but there are the first signs of weakness. Sell deals should be considered from the resistance level at 1.3424 or 1.3448 in case there is a reversal in the intraday time frames. Buy trades could be considered from the 1.3333 support level, but with additional confirmation in the form of an impulse initiative.

Alternative scenario: if the price breaks out and consolidates above the resistance level of 1.3424, the uptrend will likely resume.

• – Canada Ivey PMI (m/m) at 17:00 (GMT+2).