The US Dollar soared on Friday boosted by better than expected inflation figures for the month of August. The recent CPI release reinforced probabilities of interest rates hike before the end of this year as FED meeting looms. Traders will be waiting for super Wednesday as both the Federal reserve and Bank of Japan are expected to deliver their monetary policy report along with the latest rates decision.
These events are likely to bring huge volatility to the FX Market especially in the U.S Dollar.
Technically, the Dollar jumped during the U.S trading session and managed to end the week on a positive note. Prices succeeded to break above 95.65 short-term resistance, which cleared the path for a re-test of 96.00 psychological barrier followed by 96.25 in extension. In the meantime, the Dollar index broke above the bearish trend line that comes from 97.60 peak reinforcing the bullish outlook in the near-term. As of now, it is clear that market participants are pricing on a rate hike in the coming months, meanwhile, any dovish comments from FED officials can trigger a big sell-off in USD, especially if a clear message that rates may not move till next year is stated.
In the flipside, only a daily close below 94.90 support will put the Dollar under pressure again.
Looking at the British pound recent price action, we saw a big plunge in Sterling today on the back of political tensions following the Brexit. Sources were saying that U.K finance minister may block clients to banks in U.K to avoid immigration risks.
The Pound sold-off across the board today, losing 1.80% against the Dollar to close around 1.3000 psychological barrier. Prices dropped below the bullish trend line that comes from the yearly lows of 1.2795, in addition, we have seen a breakdown below the weekly bullish pivot of 1.3050, which confirmed that the short-term trend turned negative and is now in line with the med-term one. Therefore, another wave to the downside is likely to continue during next week as the losses may extend to as low as 1.2865 support before to see some stabilization in the pair. In the meantime, a short-term correction cannot be ruled out, however a re-test of 1.3050 broken support may offer fresh selling opportunities for bears as the bounce is likely to be short-lived.
Now looking at the Euro technical outlook, the single currency was trading inside a range located between 1.1270 in the upside and 1.1200 handle in the downside for several days as the lack of economic catalysts pushed investors to stay on the sidelines.
Finally, the pair broke below the lower bound of this range today following the U.S CPI figures, which triggered a sharp drop in the pair and by now we expect prices to continue heading lower in the coming weeks towards 1.1125 support followed by the crucial 1.1050 area. In the opposite, any correction in the direction of 1.1200 handle should be considered as temporary only as the selling pressure should resume.
Regarding USD/JPY pair, the Japanese Yen continue to fight for a clear direction in the near-term as FED//BoJ rate decisions looms.
The pair turned flat in the hourly chart as prices failed to overtake 103.35 resistance.
Therefore, another extension lower in the direction of 101.35 support level was expected, but looking at today’s price action, the pair remain neutral to slightly bearish below 102.95 peak.
In the daily chart, the pair found strong resistance near the 61.8% retracement of the entire decline that began from 107.50 peak, which stands at 104.45 level and therefore, a downside continuation is possible in the coming days.
As of now, the bullish momentum seen recently has faded and a daily close below 101.35/20 support zone would be ideal for another sell-off that can reach 100.50 major support.
In the flipside, only a breakout above 103.35 peak will weaken this negative scenario.