By JustMarkets
The US Personal Consumption Expenditures Price Index, the Fed’s preferred measure of inflation, rose by +0.6% month-over-month in January, higher than the +0.4% expected. Friday’s PCE data showed that the fight against inflation is not over and that the final interest rate looks set to reach 5.39-5.5% in the summer of 2023. This suggests three additional 25 basis point hikes. A higher peak in borrowing costs supports Treasury bond yields, which in turn drives the dollar index higher. This fundamental picture puts downward pressure on EUR/USD quotes, and the current trend may continue at least until mid-spring.
The trend on the EUR/USD currency pair on the hour time frame is bearish. At the moment, the price is trading below the moving averages but reached the daily support level. The MACD indicator is in the negative zone, but the divergence is still observed on many time frames. In the coming days, traders should expect a corrective upward movement. Under such market conditions, buy trades are best considered from the support level of 1.0544, subject to confirmation on intraday time frames. Sell positions can be considered from the resistance level of 1.0626, but it is better with confirmation in the form of a reverse initiative on the lower time frames or a false breakout.
Alternative scenario: if the price breaks down through the resistance level of 1.0704 and fixes above it, the uptrend will likely resume.
For the British pound, the Brexit deal between the UK and Northern Ireland will be the focus this week. Rishi Sunak is very close to an agreement between the countries and if it is agreed by both sides, it should be positive for the pound. But traders should understand that this will only be a short-term strengthening as headwinds persist, even though British consumers have become more optimistic about current finances and the outlook for the economy.
From the technical point of view, the trend on the GBP/USD currency pair on the hour time frame is bearish. At the moment the price is trading below the moving averages. The MACD indicator is in the negative zone, and sellers’ pressure is still present. Under such market conditions, buy trades are better to look for on intraday time frames from the support level of 1.1929 or 1.1875 if the price fails even lower. Sell trades are best sought from the resistance level of 1.2041, but better with confirmation in the form of an initiative on the lower time frames.
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Alternative scenario: if the price breaks out through the 1.2200 resistance level and fixes above it, the uptrend will likely resume.
Expectations for a more hawkish Bank of Japan stance are disappearing. Incoming Bank of Japan Governor Kazuo Ueda cooled down rumors of an earlier end to super-soft monetary policy, helping USD/JPY to strengthen. Ueda’s remarks on Friday left the door open for an adjustment in yield curve control (YCC) in the future, but he said the central bank should maintain an ultra-easy policy to support the economy. On Saturday, current BoJ head Haruhiko Kuroda also indicated that the central bank will continue with its stimulative policy and that high inflation is due to imports. Thus, the Japanese Yen is again under pressure from the dollar index.
From the technical point of view, the medium-term trend on the currency pair USD/JPY is bullish. At the moment the price is trading above the moving averages, but the daily resistance level is not letting the price move further. The MACD indicator is in the positive zone, but signs of divergence are still observed on several time frames. Under such market conditions, buy trades are best sought from the support level of 135.04, but only with confirmation on the lower time frames. Sell deals can be sought from 136.49, but with additional confirmation in the form of a reverse initiative.
Alternative scenario: if the price fixes below the 132.95 support level, the downtrend will be resumed with a high probability.
Volatility in the currency market surged last week as US Treasury bond yields soared on expectations that the Federal Reserve would be forced to continue actively tightening monetary policy to tame high inflationary pressures. The move strengthened the US dollar against most of its peers while putting pressure on commodities. The Canadian dollar is a commodity currency, so the drop in oil prices on the back of a rising dollar shows growth in the USD/CAD quotes. But over the next 2 weeks, oil quotes may see growth as analysts expect a recovery in demand from China, which is the largest oil importer.
From the point of view of technical analysis, the trend on the USD/CAD currency pair is bullish. At the moment, the price is above the moving averages. Indicator MACD has become positive, the pressure of buyers remains. Under such market conditions, it is worth looking for purchases with the expectation of continued growth. Buy orders may be considered from the support level of 1.3595 or 1.3555, but with additional confirmation on the lower time frames. Sell deals can be searched from the resistance level of 1.3700, but only with confirmation and short targets.
Alternative scenario: if the price breaks down and consolidates below the support level of 1.3469, the downtrend will likely resume.
By JustMarkets
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
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