The Analytical Overview of the Main Currency Pairs on 2023.01.17

The EUR/USD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.0829
• Prev. Close: 1.0821
• % chg. over the last day: -0.07%

The hawkish sentiment of the European Central Bank has long-term consequences for the euro. Currently, the ECB is expected to raise its discount rate by 125 bps in 2Q 2023, bringing the deposit rate to 3.25%. The ECB will then keep the rate at this level until the end of 2024. This will significantly reduce the euro and US dollar interest rate differential, which may strengthen the European currency in the short term.

Trading recommendations

• Support levels: 1.0800,1.0710,1.0650,1.0597,1.0535,1.0497,1.0480
• Resistance levels: 1.0875

The trend on the EUR/USD currency pair on the hourly time frame is still bullish. The situation is almost unchanged compared to yesterday. The price is trading in a narrow price corridor above the moving averages but has reached a strong resistance level. The MACD indicator has become inactive, while signs of divergence persist, which means that price growth is limited, and a correction should be expected to find good entry points. Under such market conditions, buy trades are better to consider from the support level of 1.0800 with confirmation on intraday time frames. Sell deals can be considered from the daily resistance level of 1.0875, but better with confirmation in the form of a reverse initiative or a false breakout.

Alternative scenario:

if the price breaks down through the support level of 1.0700 and fixes below it, the downtrend will likely resume.

The GBP/USD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.2210
• Prev. Close: 1.2195
• % chg. over the last day: -0.12%

Important economic data on the labor market will be released today in the UK. A strong labor market now benefits the Bank of England as it allows the Central Bank to raise rates for longer, but in small steps so as not to put a lot of pressure on the economy. Weak data, on the contrary, will be a sign that rising rates are already negatively affecting the labor market, which will make it harder for the Bank of England and accelerate the recession scenario.

Trading recommendations

• Support levels: 1.2145,1.2080,1.2000,1.1928,1.1875,1.1684,1.1476,1.1418
• Resistance levels: 1.2302,1.2431,1.2519

From the technical point of view, the GBP/USD currency pair trend on the hourly time frame is bullish. The price begins to form a narrow price range. As a rule, such liquidity narrowing is led to sharp impulse movements. The MACD indicator has become inactive, but the presence of divergence in several time frames will restrain the upward movement. Under such market conditions, it is better to look for buy trades on intraday time frames from the support level of 1.2145, but with confirmation. Sell deals are best sought from the resistance level of 1.2246 but also better with confirmation in the form of a false breakout or a change in the structure on the lower time frames.

Alternative scenario:

if the price breaks down through the 1.2080 support level and fixes above it, the downtrend will likely resume.

The USD/JPY currency pair

Technical indicators of the currency pair:

• Prev. Open: 127.77
• Prev. Close: 128.49
• % chg. over the last day: +0.56%

There is a growing possibility that the Bank of Japan may announce a major policy change this week as bond yields reach the upper limit again. According to economists, Japan’s Central Bank may end its yield curve control policy, which would be the first step toward normalizing monetary policy. The abolition of its yield curve control policy could cause Japanese stocks to fall sharply, but it would send a green signal for the Japanese yen to strengthen. There is another scenario — Japan’s central bank could extend the range to 75 basis points on either side of its 0% target for 10-year government bonds. This would save time until the end of the quarter when Mr. Kuroda resigns. Either way, the closer we get to spring, the more likely the Bank of Japan will change course.

Trading recommendations

• Support levels: 128.09,127.08,126.19
• Resistance levels: 129.00,128.93,129.65,131.12,132.36,133.23,134.45,135.88

From the technical point of view, the medium-term trend on the currency pair USD/JPY is bearish. The price is trading at the level of the moving averages. The MACD indicator is positive again, and there is a slight buying pressure inside the day. It is best to look for buy trades from the support levels of 128.09, but only with confirmation within the day and with short targets. Sell deals can be looked for from the resistance level of 129.00 or 129.65 under the condition of a reverse reaction or a false breakout.

Alternative scenario:

If the price fixes above the resistance level of 132.36, the uptrend will be renewed with a high probability.

The USD/CAD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.3383
• Prev. Close: 1.3405
• % chg. over the last day: +0.16%

The Bank of Canada yesterday released its Q4 2022 Business Outlook Survey on its website. The results show that business sentiment continues to weaken. Firms’ expectations and investment plans are softening as a result of higher interest rates. Companies attribute the weakening of demand forecasts to high inflation, undermining consumer purchasing power, and because of the high likelihood of a recession. More companies are expecting lower sales, with expectation inflation to exceed the Bank of Canada’s inflation target in the short term. Canada inflation data will be released today, and volatility on currency pairs with the Canadian dollar will increase.

Trading recommendations

• Support levels: 1.3354,1.3212
• Resistance levels: 1.3439,1.3492,1.3513,1.3561,1.3594,1.3632,1.3700

From the point of view of technical analysis, the trend on the USD/CAD currency pair is bearish. The price is trading in the price corridor, forming a narrowing triangle figure. As a rule, such a price narrowing leads to sharp impulse movements. The MACD indicator has become inactive. Under such market conditions, it is best to wait for an impulse breakout/breakdown and only then act. Buy trades should be considered after the breakout of the 1.3439 resistance level, but only with short targets and confirmation. Sell deals are better to look for on the intraday time frames from the resistance level of 1.3513, but with a confirmation in the form of a reverse initiative on the lower time frames.

Alternative scenario:

if the price breaks out and consolidates above the resistance level of 1.3500, the uptrend will likely resume.