Dollar bears take control midweek as FED interest rate decision looms.
Dollar
The Greenback rolls into midweek retreating from its highest level in three consecutive weeks. Factors driving this selling pressure can be attributed to mixed US economic data as JOLTS job openings for the month of March showed a slight decline from the expectations, coming in at 9.59M from a prior reading of 9.74M. Additionally, the lack of significant bullish momentum on the Dollar can be linked to the pre-FED caution ahead of today’s key FOMC meeting where a solid 0.25% increase in interest rates is pretty much nailed on. What traders will be eyeing is the subsequent policy meeting announcements as well as banking headlines for clear guidance on the risk sentiment driving Dollar demand.
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 on the front foot as the London session sees the EUR/USD pair setting a three-day high. Factors driving this exuberance can be linked to several reasons, chief among those the fact that traders tend to be extremely cautious ahead of a big economic news release like the one expected today from the FED, which has drawn out some demand for the Dollar to the benefit of the Euro and other major currencies. Additionally, fears of inflation are still persistent, and this was the case yesterday as Eurozone inflation data came in slightly above expectations in April, with core inflation at 5.6% YoY.
Looking ahead, traders will be eyeing the main event, the FED FOMC meeting, as well as tomorrow’s policy meeting by the ECB where a solid 0.25% increase is also expected, however the possibility of a surprise is not out of the realm of speculation because a 0.50% rate increase is on the cards, granted at a lower probability though.
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 with renewed optimism as price sets a new high in relation to yesterday’s trading day. Factors driving this steady in flow of buyers to the British currency can be attributed to decisions from the BoE, as they prepare for their 12th consecutive interest rate hike, which is satisfying bulls and creating a potential floor underneath the Pound around the 1.234 area.
Looking ahead traders will all be eyeing the pivotal FED meeting, where a solid 0.25% rate hike is expected, and will undoubtedly underwhelm traders as all this has been fully baked and priced in. What will be pertinent will be the nuanced clues hidden in the commentary made before any directional impetus is gained for GBPUSD.
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 Triple top within a tight trading range. As price retests this peak formation again, two scenarios present themselves. Namely, if the area is defended by sellers it could result in price making its way to the lower end of the range. 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 still being supported by significant buying pressure as it consolidates at a three week high. Factors driving this continued enthusiasm from buyers of the yellow metal can be linked to the weak risk sentiment (to the benefit of gold) driven by recent banking fears as well as the looming debt ceiling expiration date for the US in June. Moreover, the uncertainty of the FED’s rate hike path and whether a pivot from the rate hikes is down the road or somewhere further afield is adding to the risk complex as inflation still appears to be above the FED’s target range, and this is why the accompanying speech from Jerome Powell will give more directional impetus to Gold than the actual rate decision (should it come in as per the expectations)
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
Financial Market Analyst
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