The US Dollar managed to rebound from recent lows and somewhat alleviated concerns on the US-China trade front, which came together with the rebound in yields of the key US 10-year benchmark from 3-year lows in the 1.67% area.
The US Dollar Index managed to recover from recent lows in the 97.20 points region following a sharp rejection from year-to-date peaks in the boundaries of 99.00 points the figure recorded last Thursday. The index is finally showing some signs of life after three consecutive daily pullbacks and an earlier test of fresh lows, coincident with the 100-day and 55-day SMAs.
The US Dollar Index has strong support in band 97.11-96.97 points, where converge the multi-month resistance line and the critical 200-day SMA should offer strong contention and is expected to hold the downside for the time being. Above this area, the constructive outlook on the buck is seen unchanged. Next on the upside now appears a Fibo retracement at 97.87 points and the 10-day SMA at 97.95 points.
The US-China trade war is expected to remain the almost exclusive driver of the global sentiment for the time being, although an eventual deal in the next months looks highly unlikely. Regarding the greenback, its demand appears propped up by its safe have appeal, the status of ‘global reserve currency’, solid US fundamentals and the less dovish stance from the Federal Reserve.
The upbeat mood in the single currency stays well and sound so far this week, with EUR/USD pair now looking to consolidate the recent breakout of the key 1.1200 handle.
Spot is advancing for the fourth consecutive session on Tuesday, regaining more than 2 cents since last week’s post-FOMC lows in the vicinity of 1.1020, always on the back of the renewed and strong selling bias surrounding the buck. The pair managed to briefly surpass the key 100-day and 55-day SMAs earlier in the session, although the bullish attempt runs out of legs around 1.1250, where some selling orders turned up.
In today’s docket, positive German data also lent some support to EUR after Factory Orders expanded at a monthly 2.5% during June, bettering estimates.
The upbeat momentum in the single currency is extending so far this week, always following USD-dynamics and rising concerns on the trade front and its impact on global growth. However, rallies in the pair are expected to remain limited in the near/medium term in tandem with ECB’s preparations for a fresh wave of monetary stimulus (probably in September), including a potential reduction of interest rates, the re-start of the QE program and a probable tiered deposit rate system.
At the moment, the pair is gaining 0.09% at 1.1212 and breakout of 1.1249 (monthly high August 6) would target 1.1282 (high July 19) en route to 1.1297 (200-day SMA). On the flip side, the next support emerges at 1.1138 (10-day SMA) seconded by 1.1101 (low July 25) and finally 1.1026 (2019 low August 1).
The USD/JPY pair remains highly dependent on US-China trade developments and the performance of US yields. Yesterday’s drop to fresh lows and the subsequent rebound was in tandem with rising open interest and declining volume, which could allow for some near term consolidation while a potential squeeze higher remains well on the cards.
Technical indicators on the 1-hourly chart have just started gaining positive momentum and support prospects for a further intraday positive move, albeit bearish oscillators on 4-hourly/daily charts warrant caution before placing any aggressive bets.
Hence, it will be prudent to wait for a sustained move beyond the daily swing high, around the 107.00-107.10 region, in order to confirm that the pair might have bottomed out in the near-term and positioning for an additional recovery towards the 107.50-60 supply zone.
The latter marks another confluence region – comprising of a previous congestion zone and 50% Fibo. level, which if cleared will set the stage for an extension of the recovery momentum and accelerate the move back towards reclaiming the 108.00 round figure mark.
On the flip side, weakness below the current resistance zone now seems to find some support near the 106.10-106.00 band, below which the pair might turn vulnerable challenge mid-105.00s support before eventually dropping to the key 105.00 psychological mark.
The GBP/USD pair gained some positive traction on Tuesday and climbed to multi-day tops, closer to the 1.2200 handle in the last hour, albeit lacked any strong follow-through.
Given that the pair showed some resilience near the 1.2100 handle on Monday, a sustained move above 100-hour SMA was seen as a key trigger for intraday bullish traders.
Meanwhile, the uptick over the past few trading sessions has been along with a short-term ascending trend-channel formation in the 1-hourly chart. Against the backdrop of the recent slump, the mentioned channel constituted towards the formation of a bearish continuation – flag chart pattern.
However, technical indicators on hourly charts have just started gaining positive traction but are yet to recover from the negative territory on the daily chart, suggesting indecision over the pair’s next leg of a directional move and warrant caution before placing any aggressive bets.
Hence, it will be prudent to wait for a sustained breakthrough the trend-channel support, currently near the 1.2120-15 region, and a subsequent weakness below the 1.2100 mark, which will reinforce the bearish set-up and pave the way for a further near-term depreciating move.
In the meantime, 100-hour SMA – currently near the 1.2145 region, is likely to protect the immediate downside, while immediate strong resistance is pegged near the 1.2200 round figure mark – representing the top end of the descending trend channel.
A convincing breakthrough the channel resistance, leading to a follow-through move beyond 200-hour SMA – around the 1.2235 region, might negate any near-term bearish bias and set the stage for a short-covering move back towards reclaiming the 1.2300 round figure mark.