US Dollar Talking Points:
- The US dollar remains near the 20-year high it set last Wednesday following the FOMC interest rate decision.
- The end of the 2nd quarter is just around the corner. And the important question about FX is one of the motivators. US interest rate hike expectations It is very high and the price is at the same time, while the ECB has not mentioned much tightening. Even if 8% inflation is showing in the bloc, will the ECB have a similar change in the second half of 2022 that the Fed had in the first half? by accelerating tightening policies to try to control inflation?
- The analysis contained in the article relies on price movement and chart formation. To learn more about price action or chart patterns, see DailyFX Education part.
It was a milestone in Q2. and The uptrend of the US dollar is now more than a year old.. The Greenback found support at 90 mental level in last year’s DXY and shown in both January/February And in May/June, the 3rd quarter of last year, the price in USD moved towards short-term resistance. It broke out in September after the Fed began forecasting a real rate hike in 2022.
At the time, the SEP had highlighted a single rate hike in 2022, with inflation at 5% at the time after the CPI published 5.3% in August. but a simple movement To emphasize a single rate hike in 2022 is enough to show the market that the Fed will in fact react at some point.
It took much longer than many people expected.
The bank finally began its hike in March. Inflation hit 7.9 percent at the time, and a 25 basis point hike at that meeting didn’t fix the rising price trend, with May’s CPI of 8.6 percent. Larger currency hikes and the past two interest rate decisions have brought movements at 50 and 75 basis points respectively. This indicates that the Fed is ready to use tougher drugs to try to cope with inflation.
On the other hand, it seems that Europe is slightly behind a similar trend. Inflation in Europe has hit 8%, and profits are likely to increase there. At this point, the ECB has mentioned a 25 basis point hike in July. followed by other hikes In September, but – will this work be accomplished? Or will the ECB find itself in the same spot as the Fed trying to speed up policy compliance in an attempt to curb inflation on a broad and ongoing basis?
This will be a problem for Q3, but the answer to this question is key for the direction of the US dollar. That has skyrocketed over the past year with the FOMC standing as the richest central bank in the world. The developed world and with inflation elsewhere this may not last.
US dollar
Considering the USD over the long term and the currency is still clinging to large resistance, the 103.82 level was a swing-high in 2017 and recently it has benefited from short-term support. But throwing in is Fibonacci’s retreat at 10.80 a.m., which helped find support in late May.
However, what is worth noting is the upper wick of last week’s candle. which indicates a reversal And this happened immediately after the FOMC issued a rate decision indicating a 75 basis point hike and when the market didn’t move higher in seemingly good news. look out below Because there’s something else that might be forming for what’s around the next corner.
US dollar weekly price chart
Chart provided by James Stanley; USD, DXY on Tradingview
EUR/USD
The second quarter was a tough outing for the euro. A key point to pay attention to in EUR/USD is the area around the current 19-year low of 1.0340. This happened in 2017, before the pair hit the 2,000 pips level next year.
Recently, when USD strength came online in Q2 of last year, EUR/USD started a downward trend that didn’t really stop. or even slowing down that much The price has just continued to drop.
So when the price action fell in early May with 1.0340 support in sight, the call for parity quickly populated the news as banks started looking for the elusive 1.0000 print that hasn’t happened since. It’s 2002 and it hasn’t. Happened here too This was because the support increased by about 12 pips in early May.
and then again After raising interest rates by the FOMC as the USD rose to a 20-year high, EUR/USD pushed support and set higher-lower levels again.
This does not require a full-fledged reversal forecast. But it might be enough to back off some. And if we see how the underlying tide changes in Q3, there may be something more that could be developed. but in general I expect that support will eventually run out. We may need to take a deeper back down to clear some trailed stops in short positions that have ridden this trend that is more than a year old.
Weekly Price Chart EUR/USD
Chart provided by James Stanley; EURUSD on Tradingview
GBP/USD
It was an even more painful quarter for GBP as the Euro outperformed the British Pound in Q2, which can be seen in the breakout in EUR/GBP.
but to be sure The Bank of England will tackle a similar issue as the ECB with inflation is expected to continue to climb there. In the UK, the BoE revealed ahead of time about their expectations. This includes the possibility of a recession as inflation rises above 10% late this summer. The difference, however, is that the BoE has already begun the process of raising interest rates.
In GBP/USD, the pair crossed last week’s large level at 1.2000, a strong pullback occurred shortly after. And there might be a little more room for that theme to work with. There may be resistance in the area. 1.2452-1.2500 on the chart, if not then This indicates that there is another point above the support/resistance shown around the 1.2650 area on the chart.
Weekly Price Chart GBP/USD
Chart provided by James Stanley; GBPUSD on Tradingview
USD/CAD
The big question for Q3 in USD/CAD is whether the pair can cross 1.3000 to make sure it is tested and there is resistance running from it. 1.2950-1.3000 Which has been through common tests since last August. Until now, those tests have not led to a long break. Although last week looked bright. until the price reversed for the support at 1.2950
This leaves the door open for a bullish breakout potential in Q3 with the possibility of the pair breaking above the above and leaving the 1.3000 level behind. (at least a little)
USD/CAD Weekly Chart
Chart provided by James Stanley; USDCAD on Tradingview
USD/JPY
How long can BoJ keep up with heavy breaks? That’s a big question for Q3, and it’s likely not going away anytime soon. Last week I heard the bank verbiage. ‘Closely Watched’ in Their Statement on Yen Weakness And the market sees this as a clear signal to sell the currency again. This leads to a 24-year high at USD/JPY.
But the idea of this theme persisted for another quarter, especially as most central banks around the world grew more rapidly. It seems to have stretched a bit.
However, that’s not a concern at present, and the USD/JPY pair remains near its newly formed 24-year high. And the previous resistance at the psychological 135.00 level is now a potential support.
USD/JPY four hour chart
Chart provided by James Stanley; USDJPY on Tradingview
— written by James Stanley, senior strategist For DailyFX.com
contact and follow James On Twitter: @JtanleyFX
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