A weak start to the week for the US dollar is primarily due to the prolonged recovery rally in the GBP/USD pair caused by UK political unpredictability. The safe-haven dollar dismisses investors’ concerns about China reiterating its zero-Covid policy, obstinate expectations for Fed rate hikes, and impending recession risks.
Due to doubts regarding the 0.85% gain in the US S&P 500 futures, the Euro Stoxx futures are down -0.10% in early European trading. After Friday’s upward movement, the Asian stock markets declined and the US Treasury yields remained low.
U.S. Dollar Index
A weakly bullish near-doji candlestick with a closing price that was 20 years high was printed on the weekly U.S. Dollar Index chart. The long-term trend is undeniably bullish, and these are bullish indicators, but the bullish trend does appear to have slowed down and may be displaying some instability.
Bulls may also want to exercise caution given that the 114.00 area experienced a significant sell-off two weeks ago.
Weekly USD, DXY
Over the week, it might be a good idea to concentrate on long trades in the US Dollar while avoiding weaker major currencies like the Japanese Yen and the Australian Dollar. The strongest, longest-lasting bullish trend in the Forex market is currently occurring in the most significant currency.
According to pre-open markets in the Asia Pacific, GBP/USD is expected to open during regular trading hours on the bid, with the pair up more than 0.9% into the 1.1270s. On Friday, cable closed at 1.1177, a 1.2% decline.
GBP/USD Technical Analysis
The meeting between Hunt and Bank of England (BOE) Governor Andrew Bailey and the ensuing upbeat comments from the governor of the central bank helped the pound sterling start the week with a significant bullish gap.
Following Friday’s sell-off and the BOE’s decision to end its emergency bond-buying program, attention will continue to be on the UK gilt market going forward.
The EUR/USD regains some of the ground it lost at the end of the previous week and appears to have turned its attention back to the neighborhood of recent peaks around 0.9800.
Price movement surrounding the euro is anticipated to closely track dollar trends, geopolitical tensions, and the Fed-ECB divergence in the interim. The latter is anticipated to continue to grow in light of recent findings from important economic indicators, given the continued resilience of the US economy.
Additionally, the growing fears of a regional recession – which appear to be supported by declining sentiment indicators as well as an impending slowdown in some fundamentals – add to the pessimistic outlook for the euro.
With USD/JPY trading at a new 24-year high, intervention potential is still a major concern. Following the BoJ’s intervention at the Ministry of Finance’s request, the JPY quickly gained strength.
However, the pair continued to support bullish behavior, and after just one day, the price had returned to roughly the 145.00 theoretical line in the sand.
Since then, buyers have proposed another breakout, and prices in the pair have surpassed the 147.65 level, which served as a high watermark in 1998, setting a new 32-year high. Following the CPI release on Thursday, USD/JPY experienced a brief pullback of just over 120 pip.
The AUD/USD currency pair posted a sizable bearish candlestick last week, which caused the pair to once again trade at its lowest level since the coronavirus panic of May 2020. The candlestick came close to its low as it closed. These signal a bearish trend.
Fundamentally, the Australian Dollar was already in poor shape when the Reserve Bank of Australia announced a smaller-than-expected rate hike two weeks ago, which contributed to a further decline in the value of the currency. This tailwind is bearish.
A very bearish sign is the ease with which the price was able to establish itself below the previous key support level at $0.6327.
The Australian Dollar is currently the second-weakest major currency on the Forex market, trailing only the Japanese Yen, but unlike the latter, it is highly unlikely that its central bank will make any supportive interventions.
Ahead in the week, the Bank of America Corp (NYSE:BAC), Bank of New York Mellon (NYSE:BK), and Charles Schwab Corp (NYSE:SCHW) are set to report earnings on Monday.
Also, there are several releases of inflation data from significant economies this week. However, there is only one central bank release scheduled. As a result, the week’s market volatility is likely to be lower.
Scheduled data to look out for include;
- UK CPI (inflation)
- Canadian CPI (inflation)
- New Zealand CPI (inflation)
- Chinese GDP
- Reserve Bank of Australia Monetary Policy Meeting Minutes
- Australian Unemployment
- US Empire State Manufacturing Index
- US Philly Fed Manufacturing Index
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