The US greenback (DXY) bull pattern was briefly halted in early August 2022 because the US annual inflation price in July fell greater than anticipated (8.5% versus 8.7%), prompting market hypothesis that the Federal Reserve could gradual the tempo of price hikes within the coming months.
The July FOMC assembly’s minutes confirmed, nonetheless, that there’s nonetheless an extended solution to go earlier than the struggle on inflation may be deemed received, suggesting that the Fed’s tightening cycle is way from full. This gave contemporary help to the US greenback, inflicting the EUR/USD pair to strategy the parity area.
The US financial system seems to be higher ready to resist an impending world financial downturn, as Europe is present process an vitality disaster, which is exacerbating inflationary pressures and weighing on financial progress.
Due to this fact, widening progress disparities between the US and the remainder of the world, in addition to rising geopolitical dangers in Ukraine or Taiwan, might nonetheless be supportive components for the US greenback towards its main friends such because the euro, the British pound (GBP) and the Japanese yen (JPY)
Let’s check out what is going on on the foreign exchange market by analysing charts to determine the latest developments and buying and selling alerts within the 5 most essential foreign money pairs.
Euro vs US greenback (EUR/USD) chart evaluation: Euro is headed under parity
The euro (EUR/USD) remains to be caught in a significant downtrend towards the greenback, which started in Might 2021.
After reaching the parity stage (1.00) in mid-July 2022, the one foreign money hinted at a rebound towards the dynamic resistance of the 50-day shifting common, the place it encountered a fierce promoting strain. For the reason that finish of February 2022, the 50-dma has been a powerful technical resistance to beat for the EUR/USD pair.
The euro pair was unable to make a decisive break by the $1.03-1.035 vary on August 11, giving bears renewed vitality to focus on parity ranges.
The yield differential between the German 2-year authorities bond and the US Treasury of the identical maturity stays largely destructive, indicating that financial coverage divergences between the Fed and the ECB nonetheless persist. The market believes that the ECB can’t go too far past the Fed in elevating rates of interest, amid fears of an impending recession in Europe because of the vitality disaster and hovering inflation.
Taking a look at momentum indicators, the every day RSI fell under 50 and is now heading southward. MACD exhibited a bearish crossover under the zero line, which had beforehand triggered extra draw back strain on the pair.
The following stage of help is thus offered by the July 14th lows of 0.995. Ought to this help stage be damaged, it might take us again to the December 2002 low of 0.986, roughly 20 years in the past.
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Pound sterling vs US greenback (GBP/USD) chart evaluation: Bears in full management
Since June 2021, the pound (GBP/USD) has been in a bearish pattern towards the greenback, with declines intensifying in 2022.
GBP/USD hit a low of 1.175 in mid-July, the bottom worth since March 2020, earlier than making an attempt a restoration to 1.2285, the place it collided with the descending channel’s trendline.
The cable’s temporary restoration within the second half of July was due primarily to a broader weakening of the greenback reasonably than a strengthening of the pound.
The Financial institution of England (BoE) raised the Financial institution price by half a share level to 1.75% at its August assembly, the very best price hike within the UK in 27 years, in response to elevated inflationary pressures brought on by Europe’s current fuel disaster. The BoE, nonetheless, forecasted inflation to peak at 13% in October this yr and warned that the UK might enter a protracted recession within the fourth quarter.
The gloomy financial image for the UK successfully acted as a brake on the British pound’s appreciation towards the greenback.
The GBP/USD pair broke by two key help ranges within the week ending August 19: the psychological 1.20 mark after which 1.1891 (July 22 lows). Each day RSI is nearing oversold ranges, whereas MACD triggered a bearish crossover.
On the time of writing, the pair is now approaching the year-to-date low of 1.1760. If this stage is damaged, bears will have a look at 1.1650, which was the low on March 26, 2020.
US greenback vs Japanese yen (USD/JPY) chart evaluation: Short-term aid, however not a recreation changer
The dollar-yen (USD/JPY) pair has piqued the curiosity of merchants in 2022, owing to the yen’s heavy depreciation, which misplaced 17% towards the greenback within the first half of the yr.
The exceptional USD/JPY rally reached a excessive of 139.4 in mid-July, the very best worth since 1998, earlier than shedding a little bit of steam. Fears of a world recession and the likelihood that US inflation had reached its peak fueled the yen’s temporary respite.
Nonetheless, so long as the financial coverage hole between the Federal Reserve and the Financial institution of Japan persists, this can’t be thought of a pattern reversal in USD/JPY. The Fed has but to sign a slowing within the tempo of rate of interest hikes, regardless of markets betting on this risk, whereas the BoJ continues to keep up an ultra-accommodative financial coverage by maintaining rates of interest at zero.
The yield unfold between the 2-year Treasury and Japan’s 2-year authorities bond stays large and near the June highs (3.5%), indicating that the market believes US rates of interest will stay considerably greater than Japanese charges for the foreseeable future.
Technically, after discovering dip patrons at 130.4 and 131.8, USD/JPY managed to rise above the 50-day shifting common as soon as extra, updating August’s highs. The every day RSI rose sharply above 50, and the MACD signalled a bullish crossover.
Due to this fact, USD/JPY continues to carry on an upward pattern except we observe important catalysts, resembling a Fed dovish flip or a BoJ hawkish shift. Nonetheless, rising world progress fears or geopolitical dangers, together with declining inflation fears, might reignite investor demand for the Japanese yen.
The previous few months of the dollar-Swiss franc alternate price (USD/CHF) have been a curler coaster experience, with pullback and extension phases alternating one after the opposite.
The annual price of inflation in Switzerland was 3.4% in July 2022, the identical as in June, remaining on the highest stage since October 1993 and properly above the two% goal. On the similar time, the unemployment price remains to be at a record-low 2.2%, permitting for a sustained tempo of rate of interest will increase. The Swiss Nationwide Financial institution (SNB) unexpectedly raised rates of interest by 50 foundation factors at its July assembly and is anticipated to take action once more in September, bringing the coverage price into constructive territory for the primary time since July 2011.
Probably the most outstanding chart sample on the USD/CHF every day timeframe was the double-top bearish reversal sample, which shaped in mid-June after the pair hit its second excessive at 1.006. Subsenquently, USD/CHF started its descent in direction of the neckline help zone at 0.95-0.955, which noticed some buy-on-dip conduct rising.
Within the first half of July, there was a brief restoration that struck with the resistance offered by the 23.6% Fibonacci retracement of 2022 highs to lows.
Since mid-July, nonetheless, USD/CHF has tried a pattern reversal. First, it broke by the 50-day shifting common, after which it briefly crossed under the 200-day shifting common’s defence, which had been a really robust dynamic help over the yr.
The greenback has rebounded properly in current periods and is now heading in direction of a multi-resistance zone outlined by the descending channel trendline, 50-day shifting common, and August 3’s excessive.
Sellers could be to step in within the 0.965 area; nonetheless, if the pair manages to interrupt decisively by these resistances, this is able to put the short-term bearish pattern to an finish.
Australian greenback vs US greenback (AUD/USD) chart evaluation: Not but out of the woods
The Australian dollar-US greenback (AUD/USD) alternate price travels inside a bearish channel that has been in place since September 2021, regardless of the overshoot that occurred between March and April of 2022 that introduced the pair to 0.765.
From then on, the Australian greenback plunged 13% towards the dollar, reaching its year-to-date lows at 0.668 in mid-July. There, the RSI bullish divergence triggered the reversal of the short-term bearish pattern, as AUD/USD reached contemporary lows whereas the indicator rose.
Lately, AUD/USD has been capable of overcome the 50-day shifting common, albeit with some uncertainty, and undertaking itself to the 200-day check, which represented a fierce resistance again in early June.
The Reserve Financial institution of Australia (RBA) backed the Aussie by elevating the money price by 50 foundation factors for the second time in a row to 1.85% throughout its August 2022 assembly. The RBA has dedicated to additional tightening, however not on a pre-set path, forecasting inflation to be barely greater than 7% in 2022 and 4% in 2023.
The gloomier world progress outlook on account of the struggle in Ukraine and the escalating geopolitical tensions between China and the USA over Taiwan are near-term destructive catalysts for the Australian greenback. However the opportunity of stronger commodity costs, because of provide chain disruptions, and the Fed slowing down the tempo of hikes could profit the Aussie.
AUD/USD has skilled a big pullback over the previous week earlier than reaching the 200-day shifting common and the 50% Fibonacci retracement stage (April excessive/July low), which retains the long-term bearish channel properly in place.
The pair is now testing help from July 21’s lows. A break under this stage could cause additional downward strain to July 19’s low of 0.68.