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Forex Forecast & Forex Technical Outlook for 19 February 2024 to 23 February 2024

The US dollar enjoyed a prosperous week as it surged in response to reports that US inflation is not diminishing. As a result of this unforeseen development, traders reversed their wagers on imminent Fed rate cuts.

Wednesday's publication of the minutes from the most recent Federal Reserve meeting will be scrutinized for indications concerning the timing of the initial rate cut. Regarding rate adjustments, most Fed officials have advised exercising forbearance, citing the robustness of the US economy.

Changing their attention to Europe, investors are awaiting Thursday's release of PMI business surveys for the United Kingdom and the Eurozone. Stagnant growth has plagued both economies, with the United Kingdom enduring a technical recession in the latter part of last year. 

Moreover, the minutes from the most recent RBA meeting and Wednesday's Q4 wage growth data release will provide additional insight into the Australian economy.

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Forex Technical Outlook for 19 February 2024 to 23 February 2024

Let’s see the list of events to look at this week:

  • AUD Monetary Policy Meeting Minutes on Tuesday
  • CAD CPI m/m on Tuesday
  • AUD Wage Price Index q/q on Wednesday
  • FOMC Meeting Minutes on Wednesday
  • French & German PMIs on Thursday
  • USD Unemployment Claims on Thursday
  • USD Manufacturing & Flash PMIs on Thursday

Let’s see the market outlook from the weekly forecast:

EUR/USD

With the ongoing speculation regarding the possibility of a rate cut by the Federal Reserve (Fed) later this year, US dollar and US bond yields show considerable downside pressure against major currencies.

Based on data from the CME Group's FedWatch Tool, the likelihood of a rate cut by the Federal Reserve at its meeting on May 1 is approximately 40%. In contrast, the probability of such an action in June is nearly 50%.

President Christine Lagarde of the European Central Bank (ECB) underscored the significance of the forward-looking indicator. The Governing Council of the European Central Bank (ECB) maintains its determination to guide the economy toward attaining a sustainable inflation target of 2%. Lagarde additionally stated that the ECB will adhere to a data-centric approach when making decisions.

Conversely, the recent estimate for the growth of the eurozone's gross domestic product (GDP) in 2024 came from 1.2% in November to 0.8%, with an anticipated growth rate 2025 of 1.5%. In addition, the Commission projects a decline in inflation within the Eurozone, with an estimated decrease from 5.4% in 2023 to 2.7% in 2024.

EUR/USD

A sell-side liquidity sweep from the 1.0725 support line showed buyers' activity in the market within the descending channel. In that case, a valid channel breakout with a daily candle above the dynamic 20-day EMA could be a highly probable long opportunity.

Investors should monitor how the price reacts to the dynamic 20-day EMA. A daily candle above the 1.0806 level could extend the momentum toward the 1.0950 psychological level. However, a failure to hold the price at the 1.0700 level could be an alarming sign to bulls, lowering the price towards the 1.0517 level.

GBP/USD

The United Kingdom's gross domestic product (GDP) report confirmed a technical recession, bolstering expectations that the Bank of England (BoE) may soon contemplate interest rate cuts. This phenomenon intensifies the weaker trend of the British Pound (GBP) and impedes the rebound of the GBP/USD pair from its weekly lows.

The Greenback is supported by an increase in US Treasury bond yields, offset by the early rate cut projection. Thursday's weaker-than-anticipated US Retail Sales report indicates an economic slowdown, which could lead the Federal Reserve to begin monetary easing in June.

Investors should monitor how the upcoming US employment report comes, where a weaker-than-expected result could be a bullish factor in the GBP/USD price.

GBP/USD

In the daily chart of GBP/USD, the recent price shows extreme corrective pressure, which needs a valid breakout before forming a stable trend.

Moreover, the current price shows a trendline of liquidity building, which needs to be filled before offering any long-term opportunity. Ideally, a bearish pressure and a bullish reversal from the 1.2550 to 1.2490 area could be a buy zone. However, breaking below the 1.2490 level with a bearish daily candle could lower the price towards the 1.2350 area.

AUD/USD

With the strong US Dollar from the improved Treasury yields, the Australian Dollar (AUD) is attempting to stabilize following gains. However, the AUD/USD pair receives assistance from varied economic indicators from the US. Furthermore, after Wall Street's overnight advance, the S&P/ASX 200 index experienced an upward trend, stimulating investor confidence after the upbeat US PPI.

The economy of Australia demonstrates a moderate rate of expansion, which is impacted by ongoing difficulties in the labor market and contains inflationary forces. Based on recent employment data, it appears improbable that the Reserve Bank of Australia (RBA) will opt to increase interest rates additional during its March meeting. Present market sentiment suggests that the RBA is anticipated to sustain its current interest rates through August.

AUD/USD

AUD/USD shows a descending channel breakout with a daily candle above the channel resistance. However, the 20-day EMA is still protecting bears, while the RSI formed a rebound from the 30.00 line.

Based on this outlook, a daily candle above the 0.6551 resistance level could be a valid long signal, targeting the 0.6730 resistance level.

USD/JPY

The Japanese Yen (JPY) continues to trade lower against the US Dollar (USD) despite maintaining its position above the year-to-date low it reached earlier this week. Unexpected economic data released on Thursday indicated that Japan experienced a further contraction in the fourth quarter, indicating a technical recession. This contributes to the prevailing risk-on sentiment and uncertainty regarding when the Bank of Japan (BoJ) may discontinue its negative interest rate policy.

In addition, a modest increase in US Treasury bond yields stimulates some purchasing of the US Dollar (USD), which propels the USD/JPY pair to an intraday peak. Due to Thursday's disappointing US Retail Sales data, the Federal Reserve's (Fed) early interest rate cut remains possible. 

In addition, verbal intervention by Japanese authorities contributes to the currency pair's resistance and aids in containing losses for the JPY; consequently, caution is advised before positioning for additional gains.

USD/JPY

USD/JPY bulls showed an active presence in the market as the recent price showed consecutive higher highs in the daily chart.

The dynamic 20-day EMA works as a bullish continuation opportunity as it remains below the 148.89 static level. In that case, an upward continuation is potent, where the main aim is to test the 151.92 resistance level.

XAU/USD

In response to a modest increase in US Treasury bond yields, the US Dollar (USD) regains momentum, reversing a two-day corrective decline from its three-month high. This development provides the commodity with a headwind. Furthermore, the prevailing optimistic sentiment in stock markets functions to restrict the increase in value of the safe-haven precious metal.

Notwithstanding these elements, the Federal Reserve's (Fed) prospective interest rate cut expectations continue to bolster gold's downward trajectory, fueled by the US Retail Sales report. 

In conjunction with geopolitical tensions in the Middle East, this anticipation may deter aggressive USD purchasing, thereby limiting losses for gold. The forthcoming US macroeconomic data— Housing Starts and Michigan Consumer Sentiment Index—has shifted the attention of market participants.

However, XAU/USD investors await the publication of the FOMC meeting minutes this week and the flash global PMIs on Wednesday and Thursday, respectively. Any sign of a weaker early rate cut could boost the buying pressure in the XAU/USD in the coming days.

XAU/USD

 

XAU/USD daily price trades within a descending channel, where the overall context is bullish. The ideal trading approach in this structure is to look for a long opportunity, targeting the 2089.05 level.

However, a bearish rejection from the channel resistance or dynamic 20 EMA could indicate a downside possibility. A daily candle below the 1972.95 level could extend the downside pressure towards the 1920.00 level.

BTC/USD

Bitcoin (BTC) has surpassed $52,000, an increase of over 35% since January 23, consistent with its track record of generating substantial gains in a brief period. The recent increase is noteworthy due to its occurrence during a period of strengthening the U.S. dollar index (DXY) and rising Treasury yields.

Bitcoin has historically exhibited an inverse correlation with the U.S. dollar. As an illustration, when bitcoin surpassed $50,000 in February 2021, the DXY fell by 2% to below 90.

The U.S. dollar substantially impacts international and non-bank financing because it is the preeminent dollar in the world reserve system. A global financial tightening ensues when the dollar strengthens.

An increase in the yield on 10-year U.S. Treasury securities, regarded as the risk-free rate, generally induces the withdrawal of capital from alternative assets. The yield has increased from 4.10% to 4.26% over the last three weeks, diminishing the probability of an early rate cut by the Federal Reserve.

The robustness of Bitcoin is ascribed to substantial inflows into spot exchange-traded funds (ETFs) domiciled in the United States. Around twelve exchange-traded funds (ETFs) have initiated trading in the United States since January 11, amassing a net inflow of approximately $5 billion.

The second-largest economy in the world, China, is confronted with deflationary pressures, a real estate market crisis, and a stock market decline. Amidst economic uncertainty, Chinese citizens have reportedly adopted Bitcoin, as reported by Reuters.

In the daily chart of BTC/USDT, the ongoing buying pressure is potent as a stable market is visible above the 50,000.00 psychological level. In that case, the price is more likely to extend and test the 161.8% Fibonacci Extension level at 55,489.42.

On the bearish side, an immediate selling pressure with a daily candle below the 49,000.00 level could signal a downside correction toward the 3,891.40 level.

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