Last week's economic indicators indicate a progressive easing of price pressures across the economy. In June, the headline and core CPI increased by 0.2%, the smallest monthly increase since early 2021. In addition, core producer prices posted their lowest annual growth rate since February 2021. Despite the robust demand for labor, there are indications that employers may be cutting back on hiring.
Last week's data on decelerating inflation led to a decline in Treasury yields, as investors predicted the FOMC would implement one last rate rise in July, followed by rate cuts beginning in 2024. The 10-year Treasury yield is currently 3.82 percent, a decrease of 24 basis points from one week ago. The yield on the two-year Treasury note, which is more sensitive to short-term variations in the federal funds rate, also decreased by 20 basis points over the past week.
In other countries, the Bank of Canada increased its policy interest rate, but policymakers appear open to the possibility of additional rate increases due to persistent inflation exceeding expectations. Although we believe the Bank of Canada has attained its maximum policy rate, risks point to at least one more 25 basis point increase.
In contrast, central banks in emerging markets are poised to begin reducing their monetary policies. In the coming weeks and months, Latin American institutions are likely to take action, while our framework indicates that policymakers in various regions have the capacity to reduce interest rates before the end of the year.
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Forex Technical Outlook for 17 July 2023 to 21 July 2023
Let’s see the list of events to look at this week:
- CNY GDP on Monday
- CNY Industrial Production on Monday
- Empire State Manufacturing Index on Monday
- AUD Monetary Policy Meeting Minutes on Tuesday
- CAD Consumer Price Index (CPI) on Tuesday
- US Retail Sales on Tuesday
- NZD CPI on Wednesday
- GBP CPI on Wednesday
- US Unemployment Claims on Thursday
Let’s see the market outlook from the weekly forecast:
EUR/USD continued pushing higher, as shown in the previous weekly outlook. For this week, the momentum could resume after forming a considerable correction.
The weakness in the US Dollar after the CPI news pushed EUR back to the zone last seen in February 2023. As a result, investors anticipate this pair because it could test the 1.1494 level, which is the 2022 high.
In the weekly price of this pair, the price is trading above the flat 200 period Simple Moving Average for the first time since Dec 2022. Moreover, the 20-period SMA showed a bullish crossover above the 100 SMA, while the current RSI is near the overbought zone. Based on the weekly technical tools, the upward pressure is potent, and bulls can extend the momentum in the coming days.
EUR/USD has been trading higher for the last seven consecutive trading days. As a result, upward exhaustion is present, and downside pressure may come soon due to profit-taking. The coming trading days will be crucial as a sideways or corrective downside pressure could indicate significant sellers' presence in the market.
Technical indicators have reached the overbought area, which signals a possible downside momentum in the price without any clue. On the other hand, a bullish possibility is possible as the current price shows a stable momentum above rising moving averages.
EUR/USD will likely extend the current trend towards the 1.1300 level in the coming trading days. On the other hand, the near-term support level is at the 1.1180 level, which needs to break before reaching the 1.100 psychological level.
An extensive bullish pressure is visible in the GBP/USD price, which provided a huge gain to bulls, but investors might experience a corrective price action after this impulse.
GBP/USD continued pushing higher throughout last Friday and experienced a major leg extension above the technical breakout.
The current situation raised concern about further upside pressure as the 14-day Relative Strength Index (RSI) experienced an overbought condition above the 70.00 line. Also, Selting Bulls appeared to face a barrier from the 1.3150 key psychological resistance level.
The bullish continuation pattern must pass a corrective price action before forming another upward leg, which can find the next resistance at the 1.3298 level. However, the thought task is to breach the 1.3200 key resistance level before forming another impulsive bullish swing.
As the price is already overbought, the price could go for a downside correction towards the 1.3000 level within this week, but breaking below this level with a D1 close could see the 1.2850 region.
AUD/USD is back above the 0.6800 level, as shown in the previous weekly outlook. Investors should now see how the price reacts on this key psychological level.
AUD/USD showed a strong rebound the previous week and managed to end last Friday above the 0.6800 key psychological level. However, the price failed to make a new swing high above the existing attempt at 0.6900, creating a potential double bottom pattern.
The price is trading above the 20-day Exponential Moving Average level, while the RSI shows a strong buyers’ presence in the market.
As the existing bullish impulsive pressure came from a range breakout, we may expect a bearish correction before forming a new swing high above the 0.6900 area.
The ideal trading approach is to look for a short-term bullish reversal in the intraday chart, aiming for the 0.6950 area. But a steady downward pressure and a D1 candle below the 0.6750 level could limit the gain and lower the price towards the 0.6642 level.
Strong selling pressure is clear with a profit taking last Friday. A bullish correction in this pair could signal more bearish opportunities.
After an extensive loss, USD/JPY bounced back on Friday, indicating a moderate gain after seven consecutive bearish trading days.
The price pulled back from the new 2023 swing high came from the accelerated US Dollar weakness. Therefore, the end of the Fed’s tightening cycle could retrace the 50% Fibo level from the 145.06 high to the 129.64 low.
The deeply oversold week with a fresh profit taking on Friday shows strong selling pressure in the market. However, the Hammer candlestick formation on Friday could signal a bullish reversal, which needs to close a D1 candle above the 138.44 level.
For this week, the reversal from the Hammer formation and a bullish break above the 140.00 psychological level could be a long signal, targeting the 145.000 level. On the other hand, any bearish reversal from intraday resistance levels could be a trend continuation opportunity.
XAU/SUD formed a strong bullish breakout from the trendline resistance, increasing the possibility of a bullish trend continuation.
The current 14-period Relative Strength Index in the XAU/USD D1 chart shows the highest level since May 2023. It signals a strong bullish reversal in the market, validated by the potential range breakout from the existing descending channel.
The price ended the trading week at the 23.6% Fibonacci Retracement level of the long-term uptrend, while the current 50 and 100-day SMA levels are working as key technical points. As long as the 50 SMA supports the price, we may consider the upward pressure solid, while the main aim is to test the 2000.00 psychological level.
On the other hand, buyers’ failure could be seen if the price rebounds strongly below the 20-day Exponential Moving Average level. In that case, bearish pressure may come, where the main aim is to test the 1900.00 key psychological level.
After the United States Securities and Exchange Commission (SEC) vs. Ripple lawsuit concluded, Bitcoin's (BTC) sideways trading ceased. This event caused the price of Ripple (XRP) to double within a few hours, generating excitement that bolstered other altcoins, including Bitcoin. BTC broke out of its 23-day consolidation phase and surged to $31,500, exceeding its second-quarter high.
The 365-day Market Value to Realized Value (MVRV) metric with a 365-day Moving Average (MA) is a promising indicator for a possible new bull cycle in Bitcoin. This metric measures the average profit and loss of BTC buyers over the past 12 months. When the MVRV is greater than 3.7, it suggests that the asset is overbought and frequently indicates a market peak. In contrast, if the 365-day MVRV falls below 1, it indicates a potential bottom and a likely trend reversal.
The MVRV ratio has fallen into the green band and rebounded to 1.48, indicating a possible new uptrend.
The profit percentage of Bitcoin's total supply is an additional essential metric to consider. Market or cycle troughs have been identified when this indicator falls to or below 45%. Similar to May 2022, the indicator is currently near 79%, indicating that many investors are profiting.
On the daily chart, the Bitcoin price has not changed significantly. The weekly bearish breaker between the 29,247.00 and 41,273.00 range continues to threaten bullish momentum. Investors should aim for 35,250.00 and 41,300.00 on the bullish side, corresponding to the bearish breaker's midpoint and upper limit.
If Bitcoin surpasses the psychological level of 40,000.00 weekly, it would be an extremely bullish signal that could re energize the 2023 rally. However, breaking below the 30,000.00 level could limit the gain, and the price could revisit the 28,000.00 support level.
After a strong US dollar weakness, investors might expect a corrective week, but any sign of volatility with an exhaustion could indicate a trend reversal.