The Analytical Overview of the Main Currency Pairs on 2023.01.18

The EUR/USD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.0820
• Prev. Close: 1.0787
• % chg. over the last day: -0.30%

The ZEW German Economic Sentiment Index, jumped in January, outperforming the previous month’s reading. The ZEW Business Sentiment Index is considered a leading indicator of economic activity. The positive reading, the first since February 2022, indicates a marked improvement in economic conditions over the next six months, while the prospect of further declining inflation has improved expectations for consumer sectors. The ZEW index for the Eurozone also jumped. The increase in the indicators had little impact on the EUR/USD exchange rate, but there are more and more factors for a stronger euro.

Trading recommendations

• Support levels: 1.0780,1.0710,1.0650,1.0597,1.0535,1.0497,1.0480
• Resistance levels: 1.0833,1.0875

The trend on the EUR/USD currency pair on the hourly time frame is still bullish. But the price is trading below the moving averages, rebounding from the daily resistance level. The MACD indicator has become negative, with signs of divergence persisting. Inside the day, sales begin to prevail. Under such market conditions, buy trades are best considered from the support level of 1.0780, with confirmation on intraday time frames as a false breakdown of the level. Sell deals can be considered from the resistance level of 1.0833, but better with confirmation in the form of a reverse initiative.

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: 1.2194
• Prev. Close: 1.2287
• % chg. over the last day: +0.76%

The UK unemployment rate remained at 3.7%, but average earnings rose to 6.4% from 6.1% the previous month, the highest rate of growth. In real terms (adjusted for inflation), wages fell by 2.6%, one of the biggest declines of all time. In other words, people’s wages went up, but purchasing power went down because of record inflation. The combination of high inflation, rising wages, and a strong labor market may well incline the Bank of England to raise rates more than expected at next month’s meeting.

Trading recommendations

• Support levels: 1.2220,1.2145,1.2080,1.2000,1.1928,1.1875,1.1684
• Resistance levels: 1.2288,1.2308,1.2431,1.2519

From the technical point of view, the trend on the GBP/USD currency pair on the hourly time frame is bullish. The price is slowly rising, forming narrow price corridors. As a rule, such narrowing of liquidity led to sharp impulse movements. The MACD indicator became positive, but the presence of divergence and the presence of the daily resistance level limits the further growth of quotes. Under such market conditions, it is better to look for buy deals on intraday time frames from the support level of 1.2220, but with confirmation. It is better to look for sell deals from the resistance level of 1.2288 or 1.2308, but it is also better with a 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: 128.48
• Prev. Close: 128.15
• % chg. over the last day: -0.26%

The Japanese yen dropped more than 2% after the Bank of Japan’s monetary policy meeting. The Bank of Japan left all policy settings unchanged. This includes the discount rate (maintained at -0.1%) and the 10-year bond yield target of around 0%. Policymakers also mentioned that they would continue to buy bonds with a degree of flexibility. This underscores the Central Bank’s intention to continue to control the yield curve as planned. This disappointed investors who had hoped for the first steps of monetary policy normalization.

Trading recommendations

• Support levels: 129.65,129.12,128.09,127.08,126.19
• Resistance levels: 131.34,132.37,132.95,133.23,134.45,135.88

From the technical point of view, the medium-term trend on the currency pair USD/JPY is close to changing to bullish. The price is trading above the levels of the moving averages but below the change in priority. The MACD indicator has become positive and indicates overbought. Buy trades are best considered after a slight correction from support levels of 129.65 or 129.12, but only with intraday confirmation. Sell deals can be looked for from the resistance level of 131.34 or 132.73 on the condition of a reverse reaction or false breakout.

Alternative scenario:

If the price fixes above the resistance level of 132.73, the uptrend will be renewed with a high probability.

The USD/CAD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.3400
• Prev. Close: 1.3388
• % chg. over the last day: -0.09%

In Canada, the consumer price level fell from 6.8% to 6.3% year-over-year. Core inflation (which excludes food and energy prices) also declined from 5.8% to 5.4% y/y. The decline in the cost of living was mainly due to a 13% drop in fuel prices. But food prices rose another 0.3% in the last month. While the official inflation rate is still more than double the Bank of Canada’s target, it is now at its lowest level in almost a year. Economists believe the central bank is likely to raise the benchmark interest rate by at least another 0.25%.

Trading recommendations

• Support levels: 1.3352,1.3212
• Resistance levels: 1.3459,1.3513,1.3561,1.3594,1.3632,1.3700

From the point of view of technical analysis, the trend on the USD/CAD currency pair is bearish. The price is traded in the price corridor. As a rule, such accumulation of liquidity leads to sharp impulse movements. The MACD indicator has become inactive. Under such market conditions, it is best to wait for the impulse exit and only then act. Buy trades should be considered from the support level of 1.3352, but only with short targets and confirmation. Sell deals are better to consider in the intraday time frames from the resistance level of 1.3459, but with a confirmation in the form of a reverse initiative or a false breakout.

Alternative scenario:

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