Analytics

The shared currency continues to tread water around the 1.000 parity level these days. The EURUSD pair briefly dipped to 0.9950 on Thursday, signaling its readiness to extend the plunge amid the persisting demand for the safe-haven dollar. The USD index derailed the 109.00 mark for the first time in twenty years and could target the 110.00 psychological level after some hesitation.

Despite the extremely oversold conditions, risks for the common currency remain skewed to the downside as the euro remains pressured by economic risks in the Eurozone, with energy crisis adding to a downbeat tone in the region. Earlier this week, the biggest pipeline carrying Russian gas to Germany began annual maintenance, and markets are worried the shutdown might be extended because of the ongoing conflict in Ukraine. Earlier, Moscow has cut off gas supplies to several European countries that did not comply with its demand for payment in roubles.

Euro pressured by politics as well

As the situation in Europe’s economy and energy markets keeps deteriorating, the euro is unlikely to stage any sustained and significant rebound any time soon. Furthermore, the incoming economic data continues to signal the weakening activity. Of note, the European Commission cut its economic growth forecasts for the European Union and the Eurozone for 2022 and 2023 on Thursday.

Additionally, the European currency feels the pressure from political developments in the region. Italian Premier Mario Draghi offered to step down after a political party in his ruling coalition refused to support a key government bill. However, the country’s president rejected the resignation and asked him to address Parliament to get a clear picture of the political situation.

In the short term, the EURUSD pair could continue to oscillate around parity before deciding on the further direction. Should the 1.1000 mark give up on a daily and/or weekly closing basis, the euro may target the 0.9600 support zone next. On the upside, the nearest resistance arrives at 1.0120, followed by the 1.0180-1.0190 region.

Bitcoin has been rising for the third consecutive session on Friday, trending north along with traditional financial markets as investors shrugged off the Fed’s hawkish tone in the June meeting minutes to focus on positive developments. Now, market focus shifts to the US employment report which is expected to show another month of healthy growth in jobs.

The BTCUSD pair exceeded the $22,000 figure for the first time since mid-June to touch local highs around $22,400 earlier on Friday before retreating back below $22,000 in recent trading. Despite the prevailing upside bias these days, the overall sentiment in the cryptocurrency market remains cautious, with bearish risks persisting. Similarly, stock markets enjoy just a short-lived rally within a broader downtrend. Of note, European equities opened slightly lower on Friday, with US stock index futures coming under some pressure in early pre-market deals, suggesting risk demand could abate on a weekly close.

Dead cat bounce?

The fact that bitcoin has settled above the $20,000 mark these days helped brighten the technical picture somewhat, but the coin is yet to confirm the breakout that could push the prices to the levels above $23,000 if the buying pressure persists in the coming days. On the shorter-term timeframes, however, the momentum is waning, which implies that the digital currency could switch into defensive mode later in the day.

Should the selling pressure reemerge, the largest cryptocurrency by market capitalization will get back under $20,000 to target the $18,600-$17,600 zone that capped the plunge last month. As crypto winter continues, many traders expect the price to find a bottom somewhere around the $10,000. So the current recovery could be just a so-called dead cat bounce.

The Reserve Bank of Australia raised the official cash rate by 50 basis points to tame strengthening inflation, as widely expected. In a delayed reaction to the meeting outcome, the AUDUSD pair fell in Asia, staying under pressure in early European hours. The Aussie has already wiped out a half of yesterday’s gains as the pair once again failed to overcome the 0.6900 barrier that has been capping bullish attempts these days.

The Australian dollar failed to benefit from the rate decision that didn’t entail any surprises. The Aussie was also pressured by a relatively cautious tone from the central bank as the monetary authorities said that extent and timing of further tightening depend on future data developments. Lack of clarity suggests the RBA may tighten its monetary policy in a controlled manner over the coming months, which is unlikely to be sufficient to derive sufficient support for the AUD.

AUD to stay pressured in the near term

A measured approach by the central bank coupled with recession fears imply that AUDUSD is likely to remain under pressure for now. Technically, the pair remains capped by the descending 20-DMA for nearly a month already. A decisive break above this moving average, today at 0.6945, would pave the way towards the 0.7000 psychological level last seen in mid-June. On the downside, failure to hold above 0.6800 implies that the prices could challenge mid-2020 lows registered in the 0.6760 area last week.

In the longer term, the Federal Reserve may have to cut rates at some point should the US economy fall into recession. Against this backdrop, the greenback could reverse its current gains alongside with interest rates. In the short term, however, interest rates will continue to rise significantly in the US as elevated inflation represents a more urgent issue at this stage.

Earlier in the week, the USDJPY pair touched the 137.00 figure for the first time in 24 years. Rejection from fresh long-term peaks pushed the prices towards the ascending 20-DMA last seen one month ago. The greenback extended its downside correction to the 134.75 zone, losing ground for the second session in a row on Friday.

This comes along with some retreat in US Treasury yields with the bond market suggesting the yields have peaked, at least, for the time being. After rising to 3.50% in June, the 10-year Treasury yields slipped back below the 3% mark and could go even lower as market pricing for the Fed’s rate keep retreating.

Fresh data out of the United States showed that the personal consumption expenditures price index arrived at 6.3% on an annualized basis in May, the same as in April. As price growth remained unchanged, some evidence mounts now that inflation may have peaked already, suggesting the Fed to slow the pace of rate increases later this year.

Bullish trend to stay intact

Against this backdrop, the US dollar eased across the board on Thursday as traders proceeded to profit-taking after the price briefly exceeded the 105.50 zone. In turn, a broad-based retreat in the greenback helped the Japanese yen recoup some of the recent losses. In the very near term, USDJPY could stay on the defensive, but the overall bullish trend remains strong and unabated due to the persistent policy divergence between the Federal Reserve and the Bank of Japan.

In the immediate term, the pair is likely to stay above the 20-DMA, today at 134.75. Otherwise, the dollar could fall to the 134.25 intermediate support on the way towards retesting the 132.00 zone last seen two weeks ago. On the upside, a decisive daily break above the 136.70 region would pave the way to extending the bullish momentum, with the next key target arriving at 140.00.

Calmer tones are prevailing in the global financial markets on Monday, with equities holding higher along with other riskier assets. Against this backdrop, the US dollar struggles to regain the upside momentum while also refraining from a significant bearish correction, oscillating around the 104.00 mark at the start of the week.

The market if shifting its focus towards the deteriorating economic conditions, suggesting the incoming data will start to paint a bleak economic picture, adding to the selling pressure surrounding high-yielding assets in the weeks and months to come as global central banks look set to proceed with their tightening plans to fight inflation. In this scenario, the safe-haven dollar would continue to outperform its rivals in the medium term as the US currency is traditionally preferred in times of recessions and global growth slowdown.

Euro faces 20-DMA

As the greenback retreated marginally, the euro has started the week on a firm footing. EURUSD rallied early on Monday but failed to overcome the descending 20-DMA that represents the intermediate barrier on the way towards the 1.0600 mark. The pair stays on the offensive on the daily charts, but obviously lacks the upside momentum to challenge the nearest threshold. On the downside, the immediate support arrives around 1.0550, with short-term upside risks persisting while above this zone.

The key event risk this week will be the debate between the governors of the Federal Reserve, the ECB and the Bank of England. Should Lagarde express a cautious tone on the economic outlook, the shared currency could give up its recent gains versus the greenback. The US dollar, in turn, may capitalize on Powell’s speech if the Fed governor confirms the central bank’s commitment to its aggressive tightening plan. Otherwise, the buck would suffer losses across the market.

The largest cryptocurrency by market capitalization continues to oscillate around the $20,000 figure these days, struggling to stage a sustained bounce in a broader bear market.

Similarly, equity markets stay depressed, with short-lived relief rallies attracting fresh selling pressure as investors continue to express concerns over the outlook for the global economy. Inflation remains elevated while growth slows down, triggering more worries about recession amid central banks’ tightening measures.

Staying in tight correlation with stocks, bitcoin remains vulnerable to further losses, while industry issues add to bearishness in the crypto space. The market has entered a so-called crypto winter, which implies that digital assets could face even deeper losses down the road.

It’s not the right time to buy

Now that bitcoin derailed the $20,000 mark to refresh late-2020 lows around $17,600, the $16,000 mark comes into the market focus. Furthermore, should $15,000 fail to withstand the pressure, the BTCUSD pair may target even the $10,000 mark. In other words, it’s too early to buy bitcoin on dips now as more attractive entry points could lie ahead.

In a wider picture, however, crypto-enthusiasts see a future for digital assets, predicting that the sector will recover eventually. By the way, based on past history, bitcoin is about to start an accumulation period. Still, as the market now faces its own challenges (apart from correlation with stocks) around energy use, security and privacy, any significant rebound shouldn’t be expected any time soon, with downside risks persisting both in the short- and medium term.

European stocks are holding solid gains alongside US stock index futures despite the recent hawkish remarks by ECB policymakers. In particular, the central bank’s Governing Council member Olli Rehn said it is very likely that September rate hike would be bigger than 25 bps, while Kazimir said that negative rates "should be a thing of history" by September.

The euro extended gains after those remarks but failed to challenge the 1.0600 figure and retreated partially in recent trading, which implies that the upside potential remains limited even as the buck loses ground nearly across the board. Still, EURUSD holds onto decent intraday gains ahead of the New-York session and could stay upbeat for some time before the selling pressure reemerges.

Cable struggles despite recovery

Similarly, the pound came off daily highs seen around 1.2325 to settle back below 1.2300 after the latest survey by CBI pointed to a sharp decline in price expectations among British manufactures. The price expectation index fell this month to +58 from +75 in May to mark the lowest level since September. In part, this is an early sign of slowing inflation, which in turn could deter the Bank of England from aggressive tightening measures some time later this year.

GBPUSD has been rebounding from March 2020 lows registered below 1.2000 last week. Even as bullish bias has been prevailing since then, the current ascent looks indecisive and too modest to bet on more sustained recovery in the coming days and weeks. Furthermore, the cable remains capped by a slightly descending 20-DMA that arrives above 1.2400. Thus, the path of least resistance remains to the downside for the time being while dollar’s weakness looks temporary.

Following the Fed’s decision to hike rates by 0.75% on Wednesday, the greenback retreated, thus pushing the non-yielding precious metal north. However, the bullion encountered the 100-DMA to come back under selling pressure on Thursday.

The XAUUSD pair was rejected from the mentioned moving average that arrives just above the $1,840 figure to dip back to the $1,820 zone during the European trading hours. As gold prices failed to extend the recent bounce while the greenback remains resilient, the metal looks unlikely to see solid gains in the near term as traders continue to sell the rally.

Focus on the 100-DMA

Gold remains pressured by a stronger dollar, thus struggling to capitalize on risk aversion in equity markets. In turn, the buck derives support from aggressive tightening measures by the Fed at this stage. Later in the year, however, the yellow metal could see a rebound if the US economy slows down dramatically, thus making the central bank reverse its course.

In the near term, XAUUSD needs to hold above the $1,800 handle that has been capping losses so far this week. The immediate support now arrives at $1,815, followed by $1,805. On the upside, the key short-term barrier is represented by the mentioned moving average. A decisive break above this region on a daily/weekly closing basis would pave the way towards a more sustained bounce, with the next major resistance arriving at $1,880 where this week’s highs lie.

As for the dollar itself, the USD index is flirting with the 105.00 mark on Thursday, adding 0.20% on the day. It looks like the greenback is awaiting a fresh catalyst to get back to twenty-year highs seen in the 105.80 area yesterday.

Friday’s CPI report showed consumer price growth exceeded expectations last month, making investors bet on a 75 bps rate hike from the Fed later this week.

The latest inflation data also pushed analysts at JP Morgan and Goldman Sachs revise their forecasts on rates. Now, economists expect the US central bank to deliver a triple hike, with futures market pricing in a 98% probability of a 75 bps hike.

Risk-averse environment plays into dollar’s hands

Against this backdrop, the USD index rallied to twenty-year highs beyond the 105.00 figure at the start of the week to register fresh tops around 105.30. The greenback has settled around 105.00 during the European hours, struggling for direction after failed bearish attempts earlier in the day.

Despite the overbought conditions, the US dollar looks set to extend the ascent within its broader uptrend, also being supported by risk-averse environment that persists across the financial markets this year.

Euro slightly off lows, remains depressed

EURUSD dipped below 1.0400 earlier in the day but managed to rebound back into positive territory, holding around 1.0460 ahead of the New York session. As the shared currency failed to regain the 1.0500 immediate barrier, the path of least resistance remains to the downside for the time being.

In a wider picture, the euro could stay on the defensive as well despite the ECB turns more hawkish on rates. By the way, ECB’s Knot double down on his call for a 50 basis point hike in July. However, EURUD was unfazed by the message as USD bulls continued to set the tone for a broader market.

After negative open, European stocks trimmed intraday losses while US stock index futures turned slightly positive as the selling pressure has abated somehow. Against this backdrop, the safe-haven greenback came under pressure to slip back to the 102.50 key zone that has been in the market focus this week. The USD index was rejected from the 102.70 zone earlier today, still struggling to regain the 103.00 barrier last seen more than two weeks ago.

In a wider picture, the buck remains supported by the Fed’s aggressive tightening plans as well as recession concerns amid the ongoing geopolitical tensions, elevated inflation, and supply chain disruptions. Also, USD bulls continue to cheer the rising US Treasury yields.

USDJPY: fresh peaks could lie ahead

USDJPY printed fresh twenty-year highs around 123.55 earlier on Thursday before reversing intraday gains as traders proceeded to profit-taking following another major rally. The pair has settled below 133.50 since then and could see a deeper retreat in the near term amid overbought conditions. Still, as the Bank of Japan offers little inclination to change its monetary policy (in contrast to Fed’s hawkish approach towards tightening), USDJPY is likely to stay within a broader bullish trend for some time before a major reversal takes place eventually.

Should the dollar extend the correction and derail the 131.00 mark, the 130.00 support zone, followed by the ascending 20-DMA, could cap the selling pressure. On the upside, the next significant target arrives at 135.00. In turn, a break of this level opens the way towards 137.00.

In the near term, the buck could retreat if the US inflation report disappoints on Friday. However, weak numbers are unlikely to affect the Fed’s tightening plan for the time being. As such, the data could have just short-lived impact on the US currency.