Mid-month and the Dollar has come under some significant pressure on the back of hot labour market data, banking sector concerns and rising inflation.
Dollar
The Greenback rolls into midweek shaking off some of the selling pressure as it finds some mild support near a one-month low. Factors contributing to this downward pressure beginning to subside can be attributed to fears around the fallout from the Silicon Valley Bank and Signature Bank beginning to recede, as regulators hint that a raft of tougher liquidity requirements are in the works to monitor and assess a bank’s ability to endure hypothetical scenarios such as the ones that have transpired recently as well as a recession.
Further afield, CPI was released on Tuesday and pointed to inflation remaining at high levels in February but continuing to gradually soften, which will make it tough for the FED to keep raising rates. As such, the probability of a 50-basis point rate hike has significantly waned on the back of recent events in the banking sector, and the balance of probabilities lies in favour of 25-basis point rate hikes next week and again in May.
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 has been partially validated as an impulsive break of structure continues to move to the upside as bulls take control of the narrative. Henceforth price could remain bullish if buyers can defend the potential bull flag continuation pattern that is currently being formed. Conversely, if sellers break through the above-mentioned support level around the 102.09 level, the narrative could shift towards the bears.
Euro
The Euro holds onto mild gains as it trades near a crucial resistance area at the one-month high. Factors contributing to the recent fading bullish momentum can be linked to the failure of European policymakers to adequately convince investors that the fallout from the US Banking sector won’t present any risks to Eurozone markets.
Looking ahead, investors will be eyeing the pivotal FOMC meeting next week, where solid directional impetus will be gained either to the upside or downside for the Euro. Additionally, traders will be factoring in today’s US Retail sales data as well as the upcoming ECB meeting on Thursday.
Technical Analysis (D1)
In terms of market structure, Current price has briefly pierced the key the 1.092 area but retreated back below the resistance area. The way in which price approached this area in the form of an ascending channel gives bears the possibility of driving price if the current bear flag continuation pattern plays out successfully. 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 under some pressure from the bears as it bounces back from a one-month high. Factors contributing to this conservative approach from the bulls can be attributed to the cautious approach investors tend to take ahead of key economic data releases. The pre-data anxiety is linked to the release of US Retail sales data for February as well as the pivotal FOMC meeting next week where the interest rate decision from the FED will influence how all other currency markets behave and what directional bias they come under.
Looking ahead, traders will be looking for any clues matching the upbeat forecasts from UK Finance Minister Jeremey Hunt as he announces the British Budget today, and if the right notes are hit for the bulls, it could propel the Pound against the Dollar until the pivotal Interest rate decision which is expected next week.
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 bear flag 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 creating a one-month high and subsequently retracing back from the level. Factors linked to the recent exuberance seen in the yellow metal can be attributed to the probabilities of smaller rate hikes from the FED being solidified on the back of softer inflation prints. A combination of factors have been working in gold’s favour in terms of the bullish bias, as the risk off sentiment inherent in the market is keeping the upside momentum intact as a result of the smaller rate hikes being priced in, which means the US could potentially avert a recession.
Looking ahead, the market will keep an eye out for the US Retail Sales data for the month of February. The data is expected to indicate a contraction by 0.3% vs. the former release of a 3% expansion. Which would imply that the resilience in consumer spending is weakening and as a result would mean the Fed is on track of achieving the 2% inflation target that has been its objective since the beginning of this cycle.
Technical Analysis (D1)
In terms of market structure, current price action has slightly breached a significant resistance at the $1 949 area creating a new high before retreating back into the range. If sellers can defend this area and maintain the impulsive break of structure, price could continue to move below the new High and validate the potential reversal pattern forming in the form of an ascending channel. However if buyers maintain their interest, price could break above and remain bullish towards the $1 998 level, which represents the previous lower-high.
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Ofentse Waisi
Market Analyst
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