Dollar bulls remain on the front foot amid renewed banking fears as well as risk aversion ahead of key economic data.
Dollar
The Greenback rolls into midweek having found some significant support around the yearly low level at 100.88, leading to the biggest daily rise in a week. Factors driving this renewed buying interest can be linked to the fading risk tolerance from investors, which has been largely driven by renewed fears of a banking fallout as disappointing earnings data from First Republic Bank failed to inspire confidence. Additionally, fears of the US debt ceiling expiration further weighed on risk appetite and allowed DXY bulls to remain on the front foot.
Looking ahead, traders will be eyeing US economic data in the form of Durable Goods Orders for March, which will offer traders some clues as far as Thursday’s GDP figures for Q1 are concerned. Should the scheduled data offer a downbeat print, versus 0.8% expected and -1.0% prior, the US Dollar Index may consolidate recent gains.
Technical Analysis (D1)
In terms of market structure, Current Price action has formed a potential reversal pattern in the form of a descending channel. The pattern, which has been partially validated as an impulsive break of structure, moved to the upside as bulls took control of the narrative before the ensuing corrective wave. Henceforth price could remain bullish if buyers can defend the potential descending channel continuation pattern that is currently being formed. Conversely, if sellers break through the support level around the 100.40 level, the narrative could shift towards the bears and break below the low of the year.
Euro
The European common currency heads into the middle of the week slightly under pressure as it loses some grip on the recent advances made by posting the biggest daily loss in 6 weeks. Factors attributed to this recent selling pressure can mostly be linked to Dollar dynamics as buyers begin taking up positions on the US Dollar amid anxiety ahead of the FED’s pivotal monetary policy meeting next week.
Looking into the rest of the week, traders will be keeping an eye on Dollar Economic Data as well as any developments on policy measures from the ECB in their continued fight against Eurozone inflation.
Technical Analysis (D1)
In terms of market structure, Current Price has approached an area with sell side pressure in the form of an ascending channel. This pattern gives bears the possibility of driving price if the current continuation pattern plays out successfully, which would confirm the larger double top reversal pattern potentially forming. Conversely, if the bulls can sustain the pressure, price could break above the level and continue the uptrend if it invalidates the resistance area in an impulsive wave.
Pound
The Pound heads into the middle of the week licking its wounds on the back of the biggest decline in 8 trading days. Factors driving this increased selling of the British currency can be linked to reduced demand for risker currencies amid banking turbulence as well as the general pre-economic-data position that’s inherent in the market before the FED’s policy decision next week. Adding to the risk aversion is news that the debt to GDP ratio for the UK has reached 100% which is its highest level since the 1960s, which ultimately discouraged buyers of the currency from taking up larger positions.
Looking ahead, traders will be eyeing US economic data to give some directional impetus to the Pound, in absence of any pertinent data coming from the UK calendar.
Technical Analysis (D1)
In terms of market structure, the bulls have been in control of the narrative and price has tested the key 1.244 level and has since pulled back forming a potential bearish double top. As price retests this peak formation again, two scenarios present themselves. Namely, if the area is defended by sellers in this current rising channel continuation pattern it could result in the potential reversal pattern being validated. Conversely, if buyers break above the area, price will continue to remain bullish in the near term.
Gold
Gold heads into the middle of the week under some pressure as it retreats from a two-day uptrend. Factors driving this decreased interest from buyers of the yellow metal can be linked to the cautious optimism seen from traders ahead of US Durable Goods data as well as the highly anticipated FED policy meeting next week where interest rates will be at the forefront. Additional factors weighing on the risk sentiment come in the form of US Treasury Secretary Janet Yellen, as she made comments that if Congress fails to raise the government’s debt ceiling it would result in default which would trigger an “economic catastrophe” that would have the nett effect of causing interest rates to shoot up higher for more than is anticipated currently.
Technical Analysis (D1)
In terms of market structure, price action has been mostly bullish, with clear higher-highs and higher-lows being printed out. Current Price action is approaching the Feb 2022 high in a corrective wave associated with a potential rising channel reversal pattern. Henceforth price action should be given the chance to print itself out to either validate the reversal pattern or to invalidate it by continuing to move up impulsively towards the aforementioned high.
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Ofentse Waisi
Market Analyst
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