At the conclusion of its monetary policy meeting, the Federal Open Market Committee (FOMC) decided to raise the federal funds rate by 25 basis points to a range of 4.50%-4.75%. The message conveyed was that there is still work to be done in bringing inflation back to 2% and that further tightening measures may be necessary, though the extent of these measures remains uncertain.
The European Central Bank (ECB) also moved this week, increasing its deposit rate by 50 basis points and indicating its intention to continue down the path of monetary tightening. In a rare move, the ECB pre-committed to another 50 basis point increase in March and stated that it would maintain restrictive interest rates for a considerable time.
Meanwhile, the Bank of England (BoE) raised its policy rate by 50 basis points and provided a relatively balanced outlook. We anticipate a final 25 basis point rate increase at the BoE's March meeting, bringing the policy rate to a high of 4.25%.
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Forex Technical Outlook for 06 February 2023 to 10 February 2023
In the wake of a busy central bank week, the upcoming days will see a slowdown in events, though not a complete halt. The Reserve Bank of Australia will continue to keep interest rates in focus.
The main events to watch for in terms of data releases will be Canada's employment report and the preliminary UK GDP results for the last quarter of 2022. With limited US data releases, the dollar may struggle to recover from the impact of the recent Fed meeting, which was perceived as less hawkish.
Before proceeding further, let’s see important releases for this week:
- RBA cash rate & rate statement on Tuesday
- GBP Monetary Policy Report Hearings on Thursday
- GBP GDP m/m on Friday
- CAD Unemployment Rate on Friday
- The US Prelim UoM Consumer Sentiment on Friday
Now move to the weekly price forecast:
EUR/USD formed a strong bullish monthly candle last week. Well, the latest weekly candlestick game with a strong by-side liquidity grab. Therefore, although the higher timeframe price action is still bullish, a minor bearish recovery is still pending in this pair. Therefore, although the higher timeframe price action is still bullish, a minor bearish recovery is still pending in this pair.
This technical analysis represents the daily price of EUR/USD, which is trading within a strong bullish trend. The financial market indeed moves like a fractal where a bearish recovery is normal within a bullish trend, and there is no exception for the EUR/USD daily price.
Although the broader outlook was bullish, last week's price action came with the counter, impulsive selling pressure, which may limit the gain for bulls in the coming days.
A bullish daily candle above the 1.0930 level with an immediate recovery is a sign that bears are interested in this instrument. However, the week was closed before violating the 1.0800 key psychological level.
Bears managed to take the price below the dynamic 20 EMA, where the fixed range high volume level from November to February is at 1.0626 level.
Based on the daily price prediction, we may expect the sailing pressure to continue as long as the price drains below the dynamic 20 EMA. In that case, the primary price target would be towards the 1.0826 level.
On the other hand, any bullish recovery and daily candle above the 20 EMA could extend the existing trend towards the 1.1100 level.
GBP/USD in the day trading week with a strong bearish Whitley candle eliminating all gains in January 2023. It is a sign that sellers are very strong in this pair and they can lower the price even more.
In the GBP/USD daily chart, a new fixed range high volume level is spotted at 1.2154 level. It is a sign that institutional investors have joined the market, and the price reacted mostly to the sellers' side. Moreover, an extreme corrective price action at the 1.2449 resistance level with a strong bearish recovery indicates active selling pressure in the market.
A strong bearish daily candle came below the dynamic 20-day EMA, while the Relative Strength Index (RSI) moved below the 50% level.
Based on the daily price prediction, the recent selling pressure below the 1.2154 high volume level indicates that bears may extend the downside momentum toward the 1.8395 support level.
On the other hand, an immediate bullish recovery and a stable price above the 20 EMA are needed before aiming for the 1.2600 level.
Although the selling pressure was strong for the AUD/USD, the higher timeframe price action is still on the buyers' side.
This technical analysis of the AUD/USD daily chart shows extreme bearish pressure in the market after failing to move above the 0.7138 resistance level. As a result, bears joined the market and ended the trading week with a strong downside momentum.
A strong bearish pressure is below the dynamic 20-day EMA, while the current RSI level is at 50%. Moreover, the fixed range high volume level is still below the price.
Based on the daily outlook of AUD/USD, the downside pressure might be challenging to break below the 0.6860 area from where a buying pressure may come. In that case, the primary aim is to look for the 0.7284 level as an immediate target area.
On the downside, a strong break below 0.6691 is needed to confirm the strong bearish trend toward the 0.6400 area.
A corrective monthly close and a strong bullish weekly close show indecisive momentum for the USD/JPY. However, if the post-NFP sentiment continues, bulls are more likely to win the battle.
In the USD/JPY daily price, a strong bullish breakout is visible from the channel resistance, while the high volume level from November to February 2023 is the immediate barrier.
Moreover, the static resistance level of 131.59 is still above the price, although a bullish daily candle appeared above the 20 EMA.
On the other hand, the Relative Strength Index stays at the neutral area, which signals a possible breakout.
Based on this price structure, a stable price above the 132.05 level is needed to consider it as a trend change. In that case, bulls may find the 138.25 level as the next resistance level.
On the other hand, any strong bearish recovery and strong rejection from the 130.59 level could resume the existing bearish trend toward the 128.00 level.
A massive selling pressure was seen in the XAU/USD daily price, initiated by the FOMC sentiment. Later on, the downside momentum extended with upbeat US employment data, which made the US Dollar even stronger.
In the XAU/USD daily price, a massive bearish daily candle below the 1900.00 key level is the primary sign that bears control the broader market. Moreover, the gap between the price and fixed range high volume level of 1780.54 has extended, which increased the possibility of a bearish pressure as a mean reversion.
In the main chart, the dynamic 20 EMA is above the price, while the RSI showed a strong downside rebound from the overbought 70.00 level.
Based on this price outlook, we can consider the upcoming price direction of XAU/USD as bearish. The primary target of the downside momentum is toward the 1807.54 level. However, an immediate bullish break and a daily candle above the 1900.00 level might alter the current momentum and resume the trend toward the 1985.00 level.
The January Nonfarm Payrolls (NFP) report revealed that the US economy added 517,000 jobs, surpassing the forecasted 185,000. However, the average hourly earnings year-over-year fell slightly short of expectations at 4.4% compared to the projected 4.9%.
In essence, this job data signals strength for the US Dollar but could negatively impact risk-on markets and recent market gains seen after the Federal Reserve's policy meeting on February 1. As a result, investors should proceed cautiously as a potential short-term sell-off in equities and cryptocurrencies may be on the horizon.
Additionally, if the disinflation trend suggested by Fed Chairman Jerome Powell persists, interest rates are likely to stay at or below 25 basis points, allowing the committee to execute a soft landing successfully.
This technical analysis of the BTC/USD daily price shows how bulls were aggressive in the market by raising the price above the 22,000.00 level. However, their recent price action shows a different story where extreme volatility is seen.
Moreover, the dynamic 20 EMA has become closer to the price, while the RSI rebounded from the overbought 70.00 area.
Based on the BTC/USD price chart, a strong downside pressure in the daily candle below the 22,296.00 level could increase the bearish possibility, targeting the 19,000.00 level in the coming days.
However, a failure to break below the 22,000.00 level and recover above the 20 DMA could resume the buying trend toward the 40,000.00 area.
The post-FOMC and Non-farm payroll sentiment indicate that the US Dollar could dominate the market against the basket of currencies. However, a minor recovery during the weekly birth period could indicate further about the coming trading days.