The Dollar remains under pressure ahead of key employment data release on Friday.
Dollar
The Greenback rolls into midweek trading at the lowest level in two months (101.17). Factors attributed to this selling pressure can be linked to several factors this week. Chief among those are the recent challenges to the Dollar’s status as the worlds reserve currency as the Chinese Yuan surpasses the Dollar as the most traded currency for the first time. This comes on the back of the BRICS countries speculate on the possibility of trading amongst one another with an alternative currency to the Dollar.
Looking ahead, traders will be eyeing U.S data in the form of PMI data, ADP employment change data as well as Non-farm Payroll data. Firmer prints might put a floor underneath the DXY to prevent it from breaking below the low of the year around the 100.71 level.
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 and continues to move to the upside as bulls take control of the narrative. 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 100.71 level, the narrative could shift towards the bears and break below the low of the year.
Euro
The Euro continued to build on the gains from last week as significant buying pressure propels the European common currency towards a two-month high. Factors lending to this exuberance from investors can be attributed downbeat Dollar dynamics as well as to growing optimism around the growth of the Eurozone, driven by the likelihood of the German economy narrowly avoiding a recession in the first quarter of the year. Adding to that positivity, the ECB’s monthly survey of consumer expectations suggests that inflation is easing, leading to more growth and a decreasing unemployment rate.
Looking ahead, investors will be looking at the final readings of the Germany and Eurozone PMI’s for intermediate directional bias ahead of the key NFP data release on Friday.
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, which 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 continuing the three-week rise it’s been on, creating a 10 month high around the 1.249 level. Factors driving this enthusiasm from the bulls can be linked to a weaker Dollar amid geopolitical concerns as well mounting fears around the Dollars dominance on the world stage. Adding impetus to this optimism from buyers of the British currency are some hawkish comments made by BoE officials, citing that a cautious monetary policy approach is still on the cards in the fight against the persistence of domestically generated inflation, which means there is still room for further interest rate hikes down the path.
Looking ahead, traders will mostly be cautious ahead of the key NFP data release on Friday, but in the interim, final readings of the U.K’s PMI data will offer some short-term opportunities and directional impetus.
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 setting a 13-month high as it broke above a significant barrier around the $ 2 020 level during the Asian session. factors driving this exuberance in the yellow metal can be linked to several dollar dynamics. Chief among those is the weakening dollar outlook driven by international trade decisions, as well as the recent bank bailout which essentially necessitated the FED to print $300 Billion, which had the nett effect of increasing the money supply and contributing towards inflationary pressure. Additionally, investors tend to apply a cautious approach ahead of key economic data releases, which has further driven buyers of the Dollar away from placing large bets ahead of NFP on Friday.
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 has just printed out an impulsive wave, confirming the reversal pattern in the form of a descending channel and the W-formation intersecting the adjoining uptrend. Henceforth price is likely to remain bullish if it keeps being supported by the new uptrend that has formed.
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