Last month, the Bank of England decided to raise the base rate by 0.15% is a significant price driver for GBP this week. The monetary policy committee of the BoE voted by a majority of 8-1 to raise the rate, while a 7-2 vote was to keep the rate unchanged at 0.1% in November. The sentiment of rate hike came from IMF’s urge to Bank of England to get on with it and the recent surge in inflation. The UK CPI reached 5.1% in 12 months to November, while in December, the CPI climbed to 5.4%. However, some analysts believe that the rate hike would not be the ultimate solution for the rising inflation as it does not affect the supply chain issue and the increasing energy prices.
In the West, the US Job report in 2021 showed a slower than expected result where the most recent report added 199K jobs in December, a 20% decrease from November’s report of 249K. However, other data remained solid, like the unemployment rate that fell to 3.9% in December from 4.2% in November.
Inflation is a matter of concern for the Eurozone economy where the EU inflation reported a record high of 5% in December where the ECB is proactive against rising prices. This week, ECB might counter that the core prices are rising slowly from the current rate of 2.6%, even if that exceeds the 2% target level. As the supply-demand issue remained intact through December, this week's CPI report might edge up even higher.
Forex Technical Outlook for 31 January 2022 to 04 February 2022
The week will start with the volatility in Asian Currency AUD where no significant change is expected from the RBA rate decision. However, a dovish tone regarding the Omicron sentiment and supply chain issue might pressure AUD. Later on, the New Zealand employment report will grab investors' attention on Wednesday, where no significant change is expected. Finally, Thursday and Friday will be the most eventful with the Bank of England rate decision and Non-Farm payroll release.
In the US Dollar index daily chart, the price showed an amazing bullish breakout above the 96.90 key resistance level with an impulsive bullish pressure. Currently, the US Dollar index is at a multi-year high where the near-term resistance is at 97.80 level. Although some bearish correction is pending from the 97.80 level, the bullish outlook remained intact until the price is coming below the 97.90 level with a bearish daily close.
The bullish channel breakout in the EUR/USD daily chart came from the strength in the US Dollar, where the long-term bearish trend became more stable. However, last week's selling pressure opened a gap between the price and dynamic 20 EMA, where a minor correction is pending.
The above image shows how the price breaks below the 1.1300 key support level and provides 150 pips to bears. Although the MACD Histogram became strongly bearish, the mean reversion is still pending.
Based on the current price structure, a bullish daily candle above the 1.1187 swing level may take the price up towards the 1.1300 level from where bears may regain momentum with bearish rejections.
GBP/USD showed amazing selling pressure from the last couple of weeks from the key supply level of 1.3700 area. As a result, the price moved below the dynamic 20 EMA in the daily chart and moved nearly 200 pips below it. Now, investors may experience strength in GBP if the rate hike occurs.
The above image showed that the price moved below the 1.3512 resistance level with a new swing low where the next support level is at 1.3267 area. The dynamic 20 EMA is currently above the price and aimed lower while the MACD lines remained bearish with a new low.
Based on this structure, a hawkish sentiment with a bullish daily candle above 1.3512 would be the buying point for GBPUSD bulls. On the other hand, any bearish rejection from the 1.3433 would open rooms for testing the 1.3267 area.
AUD/USD showed a nice breakout from the bullish channel where the daily close below 0.7150 increased the bearish sentiment. Now investors should closely monitor how the RBA provides thought over the Australian economy. As no surprise is expected, the price may follow recent levels by showing a bullish correction.
The above image shows that the MACD Histogram remained bearish while the dynamic 20 EMA is above the price with a substantial gap. Therefore, any bullish daily candle above the 0.7000 level would increase the possibility of testing the 0.7150 level before showing further selling pressures.
USD/JPY showed a bullish pressure from the 113.48 level that influenced investors to consider this level as an important support level. However, the current bullish swing failed to breach the 116.30 swing high, where the break above this level will confirm the bullish trend.
The above image shows how the MACD Histogram turned bullish where the price showed a strong bullish breakout from the dynamic 20 EMA. Therefore, a bearish pressure towards the dynamic 20 EMA is still pending where any bullish rejection from 114.70 would be the buying opportunity for this pair with the target of 117.00 level.
On the other hand, a break below the 114.50 level with a bearish daily close may alter the current sentiment and open rooms for testing the 113.47 support level.
XAU/USD failed to hold the bullish sentiment as the Hawkish sentiment from the Fed drove the US Dollar index to the multi-year high. Therefore, the price crashed from the 1850 level with a bearish pressure of 700 pips.
The above image shows how the price faced a bottom at 1780 area and closed the week with a wicked daily candle. During the selling pressure, the price moved straight to the support level without any correction to dynamic areas.
Therefore, the imbalance from the recent selling pressure is yet to fill where the price is likely to move higher toward the 1820 area. However, investors should closely monitor how the Non-farm payroll report is coming where a better than expected result would be an alarming sign for XAUUSD bulls.
The global economic condition became volatile where the US Dollar kept its promise by reaching a multi-year high. There is a clear inverse relationship between the US Dollar and Bitcoin that can explain the bearish sentiment in the BTC/USD price.
The above image shows how the BTC/USD price moved within a bearish channel where the bullish sentiment may come after breaking out from this zone.
In that case, a bullish daily candle above the 40,000.00 level would be a buying opportunity in this pair with the target of 52,000.00 area. On the other hand, any bearish rejection from the dynamic 20 EMA would extend the current bullish channel towards the 24,000 area.
Overall, investors may experience a lot of volatility from the Nonfarm payroll and UK interest rate decision. A good trade management system is applicable during the news release to stay away from unusual stop loss hit.