US Dollar Talking Points:
This is incidental Q2 And The US dollar bullish trend is over a year old now. Greenback found support in the 90s Psychological level At DXY last year and it showed up in both January / February and May / June. Prices in the US for Q3 last year went into short-term resistance, showing a breakout in September after the Fed began forecasting a real rate hike for 2022.
At the time, SEP highlighted just one rate increase in 2022. Inflation was already over 5% at that time, after the CPI printed at 5.3% for the month of August. But this simple move, highlighting a single rate hike in 2022, was enough to show that the Fed will, in fact, respond to markets at some point.
It took longer than many expected.
The bank finally began hiking in March. By that time inflation had risen to 7.9% and the increase in the 25 basis points at that meeting did little to settle the trend of higher prices, with the May CPI coming in at 8.6%. But – the bank continues to talk about the potential for higher rises, and the last two rate decisions have moved 50 and 75 basis points, respectively, indicating that the Fed is ready to take some tough medicine here to combat inflation. .
Europe, on the other hand, seems to be a little behind the same trend. Inflation in Europe has crossed 8% and there is a possibility of higher profits. At this point the ECB cited a 25 basis point increase in July and another possible increase in September. But – does it serve the job? Or – will the ECB find itself like the Fed trying to hasten policy to prevent widespread and sustained inflation?
This is going to be a problem for Q3 but the answer to this question is key to the trajectory of the US dollar, which has enjoyed a strong ride since FOMC emerged as the most hawkish central bank in the last year. Given the pace of inflation in the developed world and elsewhere, this will not last.
The American Dollar
Taking a long-term view on the USD and the currency staying on the larger zone of resistance. The level of 103.82 was swing-high in 2017 and, more recently, it has been helpful as a short-term support site. But, pitching is also a Fibonacci withdrawal At 101.80 it helped find support at the end of May.
Noteworthy, however, is that last week’s candlelight reversal signaled reversal. And this happened after the FOMC released a rate decision indicating a 75 basis point increase. And while the market may not be moving much on the seemingly good news, look below, and prepare for something else in the next corner.
US Dollar Weekly Price Chart
The chart is prepared James Stanley; USD, DXY In Trading View
EUR / USD
The second quarter is a rough outing for the Euro. The biggest place to focus on EUR / USD is the current 19-year low of 1.0340. It was set in 2017 before the pair mounted a 2,000 pip incline that ran for the next year.
More recently, when USD capacity began to come online in Q2 last year, the EUR / USD launched a down-trend that never really stopped or slowed down – prices are falling.
So when that 1.0340 support price dropped in early May, the calls for newsfeeds to equalize rapidly increased, and banks began looking for that inescapable print at 1.0000, which has not been the case since 2002. And it didn’t happen. This could happen here as the support showed about 12 pips at the beginning of May.
And then again – after the FOMC rate hike, the USD pushed downward to support EUR / USD, rising to its own 20-year-high, and again, setting high-lows.
It does not need to forecast full-scale reversal. However, there may be enough of it to allow for a little pullback. And if we look at the fundamental tidal changes in Q3, perhaps more can be developed. But, generally speaking, I expect that support will eventually give way. More than a year old now, we may need a deep pullback move to wash out some backward stops on short positions riding this trend.
EUR / USD weekly price chart
The chart is prepared James Stanley; EURUSD In Trading View
GBP / USD
This was an even more painful quarter for GBP as it surpassed the British pound in Euro Q2, as evidenced by the breakout in EUR / GBP.
But, to be sure, the Bank of England is facing a similar problem as the ECB is expected to continue to rise there with inflation. In the UK, BoE is at the forefront of their expectations, which include the likelihood of a recession as inflation rises more than 10% later this summer. The difference is that BoE has already begun the process of raising rates.
At GBP / USD, the pair crossed the big high at 1.2000 last week. After a while the strong pullback developed and the theme may have a little more room to work with potential resistance in the 1.2452-1.2500 area of the chart. If it does not hold, there is another spot of early support / resistance overhead around the 1.2650 area on the chart.
GBP / USD weekly price chart
The chart is prepared James Stanley; GBPUSD In Trading View
USD / CAD
The big question is whether the pair can cross 1.3000 for Q3 in USD / CAD. To be sure, there have been tests and there is a resistance zone running from 1.2950-1.3000 that was originally tested last August. So far, none of those tests have led to a permanent hiatus despite last week’s promises to back up prices for support at 1.2950.
This leaves the door open for a bullish breakout capability going into Q3, with the possibility that the pair will eventually break through and leave 1.3000 levels behind (at least somewhat).
USD / CAD weekly chart
The chart is prepared James Stanley; USDCAD In Trading View
USD / JPY
How long can BoJ keep their accommodation? That’s a big question for Q3 and it’s not going away any time soon. Last week the bank heard the same ‘closely watched’ sounds in its statement on the yen-weakness, and it was a clear signal that the markets would sell the currency again, leading to a fresh 24-year high on the USD / JPY.
However, the idea of this theme may last for another full quarter, especially as other global central banks grow more hokish, which seems a bit too broad.
However, this is not currently a concern, and the USD / JPY duo remains near the newly established 24-year high, and the previous position of resistance on the psychological level of 135.00 is now a potential support.
USD / JPY Four-Hour Price Chart
The chart is prepared James Stanley; USDJPY In Trading View
— Written by him James Stanley, Senior Technician For DailyFX.com
Contact and follow James On Twitter: @JStanleyFX