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Forex Technical Outlook from 01 July 2024 to 05 July 2024

Forex Technical Outlook from 01 July 2024 to 05 July 2024
Rex John Walsh Written by
Rex John Walsh
Sangram Mohanta Fact checked by
Sangram Mohanta

Last Updated on June 30, 2024 by TOP FOREX BROKERS REVIEW

In May, core inflation, as determined by the Federal Reserve's preferred gauge, experienced its most significant decline in over three years. This occurred in the context of robust personal income and consistent consumer expenditure. However, capital investment and the housing market continue to be adversely affected by elevated interest rates.

Even though the number of central bank decisions this week was lower than the previous week, numerous institutions revised their monetary policy assessments. Sweden's Riksbank maintained its policy rate at its current level, adopting a dovish stance. Banxico in Mexico maintained rates at 11.00% and provided commentary consistent with our cautious assessment of central bank easing.

The federal funds rate has remained unchanged for nearly a year as the Federal Open Market Committee (FOMC) continues to monitor progress toward a 2% inflation target. Nevertheless, the Federal Reserve continues to reduce its balance sheet through its quantitative tightening (QT) initiative. This ongoing QT is progressively influencing money market rates, including the Secured Overnight Financing Rate (SOFR), upward.

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Forex Technical Outlook from 01 July 2024 to 05 July 2024

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

  • German Prelim CPI m/m on Monda
  • ISM Manufacturing PMI on Monday
  • Eur Core CPI Flash Estimate y/y on Tuesday
  • Fed Chair Powell Speaks on Tuesday
  • ADP Non-Farm Employment Change on Wednesday
  • ISM Services PMI on Wednesday
  • CAD Employment Change on Friday
  • USD Non-Farm Employment Change on Friday

EURUSD

The US core PCE expanded at a sluggish rate of 0.1% and 2.6% monthly and annually, respectively. A positive impact on market conjecture from this anticipated decrease in underlying inflation suggests that the Federal Reserve (Fed) may start reducing interest rates at the September meeting. 

The CME FedWatch tool predicts two rate declines this year. Nevertheless, the most recent dot plot indicates that Fed officials have only indicated one rate cut this year, starkly contrasting market expectations. President of the Atlanta Fed Bank Raphael Bostic stated on Thursday that he would justify rate decreases when there is substantial evidence of inflation progressing towards 2%. 

The 10-year US Treasury yields decreased to 4.27%, while the US Dollar Index (DXY), which monitors the greenback value against six main currencies, decreased to 105.80. Monday's scheduled release of the US ISM Manufacturing Purchasing Managers' Index (PMI) data for June will be the primary catalyst for the US Dollar (USD). This data will offer a comprehensive understanding of the current state of the manufacturing sector.

EURUSD

In the daily chart of EURUSD, the current price shows a corrective momentum within a descending channel. Moreover, the 200-day SMA suggests a neutral momentum, while the 50-day EMA showed a bearish crossover.

In that case, a bullish channel break with a daily candle above the 200-day SMA could extend the upward pressure above the 1.0900 level. However, a bearish rejection from the channel resistance could extend the downside pressure towards the 1.0600 level.

GBPUSD

The Pound Sterling (GBP) experienced a modest increase in value against the US Dollar (USD). This was because the United States core Personal Consumption Expenditures (PCE) Price Index declined as anticipated in May.

The core PCE inflation data, the Federal Reserve's (Fed) preferred inflation measure, decelerated to 2.6% year-over-year (YoY) from April's reading of 2.8%, as anticipated. The fundamental inflation rate experienced a modest 0.1% monthly increase, a decrease from the previous 0.2% increase.

The US Dollar (USD) has been adversely affected by these mild inflation figures, which are increasing anticipation of early rate cuts by the Federal Reserve. The US Dollar Index (DXY), which monitors the value of the Greenback against six main currencies, has decreased to 105.80 at the time of writing.

The policy-easing cycle is anticipated to commence at the September meeting. In contrast to the market's expectation, Fed officials recommend that interest rates remain at their present levels until they are certain that inflation will decrease to the desired rate of 2%.

On Thursday, Fed Governor Michelle Bowman reiterated that the central bank is not yet at a juncture where it is acceptable to lower interest rates. She also cautioned that additional rate hikes may be necessary if the progress in disinflation appears to stall or reverse.

GBPUSD

In the daily GBPUSD price, the current price shows a corrective pressure below the 50-day EMA, suggesting a possible downward correction.

Moreover, the MACD Histogram remained below the neutral line, while the Signal line had a bearish slope. It is a sign of a possible downward correction where the current support is at the 200-day SMA level.

AUDUSD

The US Dollar is facing an unfavorable scenario as a result of the anticipated decline in US inflation data, which has sparked expectations for early rate cuts by the Federal Reserve (Fed). Subsequently, the US Dollar Index (DXY) has experienced a decline, plummeting to 105.80.

In Australia, the Australian Dollar has been bolstered by the anticipation of additional rate hikes by the Reserve Bank of Australia (RBA). The monthly Consumer Price Index (CPI) data exceeded expectations year-on-year, rising at a faster pace of 4.0% than the previous release of 3.6% and the anticipated rate of 3.8%. Consequently, market speculation regarding RBA rate increases increased more significantly.

AUDUSD

The AUDUSD remained within a rectangular pattern, while the existing market trend was bullish. In that case, a bullish continuation with a daily candle above the rectangle resistance could extend the upward pressure above the 0.6835 resistance level.

Conversely, a range extension is possible, in which additional buying pressure might come from the 0.6672 to 0.6500 zone. 

USDJPY

The Japanese Yen (JPY) experienced another historic low, momentarily reaching 161.27 before sinking below 161.00, as it continues under pressure. Despite the Japanese Finance Minister Shun'ichi Suzuki's repeated warnings, the Japanese cabinet is "watching the FX moves with a high sense of urgency," as he reiterated on Thursday. Consequently, this decline has occurred. The Ministry's posture is still challenged by markets, and these statements have lost their impact.

In the interim, the US Dollar Index (DXY), which gauges the value of the US Dollar about a basket of six significant currencies, continues to be in positive territory. This is despite the lackluster US economic data released on Thursday, which saw Durable Goods orders stagnate and Pending Home Sales decline for the second consecutive month. Furthermore, the Personal Consumption Expenditures (PCE) figures were consistent with expectations, maintaining their disinflationary trajectory without eliciting substantial market reactions.

USDJPY

The ongoing buying pressure is solid in the daily chart of USDJPY, where the current price hovers above the 160.20 level. Moreover, the dynamic 50-day EMA remains steady below the current price and works as an additional bullish signal.

In that case, the price is more likely to extend the upward pressure and test the 164.00 level in the coming days. However, a downward correction is possible towards the 157.00 to 156.00 zone before forming another long opportunity.

XAUUSD

Gold is a non-interest-bearing asset, which is why it is susceptible to the interest rates established by the Federal Reserve. The most recent data suggests that the Federal Reserve may reduce interest rates earlier than anticipated, benefiting gold prices.

Gold prices are also influenced by the commentary of Federal Reserve officials. Raphael Bostic, the President of the Atlanta Federal Reserve, indicated that the Federal Reserve has initiated discussions regarding potential rate reductions, which represents a departure from its previous data-dependent approach. Bostic predicted the fourth quarter would see an interest rate reduction, followed by four quarter-point reductions in 2025. He also noted that the initial reduction would likely serve as the beginning of a series.

The relationship between gold and the US Dollar (USD) is intricate. Although a strong USD is generally detrimental to Gold due to its pricing in USD, the increased demand from Asian central banks, who use Gold as a hedge against their currencies' devaluation against the USD, mitigates this.

Furthermore, the BRICS trade confederation is progressively substituting the US Dollar with gold in global trade. Gold is a dependable alternative for international transactions due to its stability and security as a store of value.

XAUUSD

In the XAUUSD daily chart, the current price trades within a bullish pennant pattern, where a valid breakout with a daily candle above the 2367.97 level could be a potential long opportunity, targeting the 2400.00 psychological level.

On the bearish side, a break below the 2286.56 level could lower the price below the 2200.00 psychological level.

BTCUSD

The Bitcoin (BTC) price is expected to decline this week due to the US and German governments' substantial transfers of 4,690.28 BTC to centralized exchanges, selling activity among BTC miners, and minor outflows in US spot ETFs. Technical indicators indicate that BTC may undergo an additional 5% correction shortly before potentially resuming its upward trajectory.

According to Bitcoin Miner to Exchange Flow data reported by CryptoQuant, bitcoin miners have been transmitting their BTC to exchanges at an average daily rate of 8,592.14 BTC this week, a 29% increase from the previous week.

This rise in transfers to exchanges may be attributed to the imminent necessity to cover operational costs or to capitalize on what miners perceive as overvalued prices. Both scenarios are linked to selling activity, typically indicating a pessimistic outlook for Bitcoin.

According to data from Arkham Intelligence, the US Government transferred 3,940.28 BTC, valued at $241.22 million, to Coinbase Prime Deposit on Wednesday. The Bitcoin in question was confiscated from narcotics trafficker Banmeet Singh and forfeited during a prosecution in January 2024.

Furthermore, Lookonchain data indicates that the German government transferred 750 BTC, which is equivalent to $46.35 million, to exchanges this week. A lesser transfer of 0.001 BTC to Flow Traders suggests a potential test transaction or a preliminary step towards a larger BTC sale through that entity.

BTCUSD

In the daily chart of BTCUSD, the ongoing selling pressure is seen within a descending channel, with the 200-day SMA providing immediate support. 

Investors should monitor how the price trades at this crucial support as a failure to hold the price above the 56580.24 level could open a decent short opportunity towards the 48000.00 level.

On the bullish side, a valid channel breakout could be a high probable long opportunity, aiming for the 70,000.00 psychological level.


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