The Analytical Overview of the Main Currency Pairs on 2023.05.22

The EUR/USD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.0769
• Prev. Close: 1.0805
• % chg. over the last day: +0.33%

The ECB is approaching the finish line of its current tightening cycle, having increased its cost of borrowing by 375 basis points since last July. But the European Central Bank can continue to raise rates to restrictive levels without worrying about financial stability. This is the opinion of Isabelle Schnabel, a representative of the ECB’s executive board. At the moment, money markets estimate an almost 100% chance of another 0.25% rate hike next month and expect the deposit rate to exceed 4% by September. The first-rate cut of 25 basis points is not expected until next spring.

Trading recommendations

• Support levels: 1.0768,1.0711
• Resistance levels: 1.0836,1.0875,1.0904,1.0956,1.0995,1.1056,1.1075

The trend on the EUR/USD currency pair on the hourly time frame is bearish. The price has found support at the level of 1.0768, and there is a buyers’ reaction. The MACD indicator has become positive. Under such market conditions, buy trades can be better considered from the support level of 1.0782, but only with a confirmation in the form of a false breakdown. Sell positions can be considered from the resistance level of 1.0836 or 1.0875 but with confirmation in the form of a sellers’ reaction.

Alternative scenario:

if the price breaks through the resistance level of 1.0904 and fixes above it, the uptrend will likely resume.

The GBP/USD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.2401
• Prev. Close: 1.2443
• % chg. over the last day: +0.39%

The pound sterling was relatively stable last week but could not fully withstand a strengthening US dollar. New inflation data will be released in the UK this week, which will determine the strength of the pound sterling in the coming days and weeks. UK Central Bank Governor Andrew Bailey said late last week that elevated energy prices account for nearly a third of overall inflation, and he expects at least two full points of decline in this week’s report.

Trading recommendations

• Support levels: 1.2421,1.2385,1.2343,1.2320
• Resistance levels: 1.2480,1.2546,1.2569,1.2612

From the technical point of view, the trend on the GBP/USD currency pair on the hourly time frame is bearish. The price has corrected to the moving averages. The MACD indicator has become positive, but the pressure of buyers is weak. The most optimal level to buy is 1.2421, but only with confirmation in the form of a liquidity test below the level. It is best to look for sell trades from the resistance level of 1.2480 but with a confirmation on the intraday time frames because the level has already been tested.

Alternative scenario:

if the price breaks down through the 1.2546 resistance level and fixes above it, the uptrend will likely resume.

The USD/JPY currency pair

Technical indicators of the currency pair:

• Prev. Open: 138.69
• Prev. Close: 137.97
• % chg. over the last day: -0.54%

Last week the Japanese yen depreciated by 1.69% against the US dollar. The JPY decline was mainly due to the strengthening of the dollar index. Investors moved their assets to the USD amid the uncertainty about the US government debt ceiling. The possibility of the US Federal Reserve rate hike at the June meeting was also overestimated. On the other hand, during his speech on Friday, the US Federal Reserve Chairman Jerome Powell was soft and hinted at a pause in the rate-raising cycle. That is what caused the dollar to fall at the end of the week. And there is a high probability that the dollar’s decline will continue this week, especially if policymakers manage to reach a consensus on raising the debt ceiling.

Trading recommendations

• Support levels: 137.91,135.64,135.66,135.15,134.67,133.50,133.03,132.70
• Resistance levels: 138.13,138.73,140.53

From the technical point of view, the medium-term trend on the currency pair USD/JPY is bullish. On Friday, the price reacted to the resistance level of 138.73. A price corridor is being formed at the moment. The MACD indicator is in the negative zone, and sellers’ pressure inside the day remains. The support level of 137.54 has already been tested several times, and it is no longer recommended to use it. Under such market conditions, it is best to look for buy deals from the 136.54 support level. Sell deals can be considered from the resistance level of 138.13 but with confirmation in the form of a false breakout.

Alternative scenario:

if the price fixes below the 135.66 support level, with a high probability the downtrend will resume.

The USD/CAD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.3498
• Prev. Close: 1.3497
• % chg. over the last day: -0.01%

Bank of Canada Governor Tiff Macklem reiterated Friday that it’s too early to think about cutting interest rates, adding that he expects the consumer price index to fall to about 3% this summer and return to its 2% inflation target by about the end of 2024. Macklem also added that the Canadian monetary authority had used the pause in raising interest rates to assess whether the policy had tightened enough. The Bank of Canada last raised interest rates in January, but despite the pause, the BoC is ready to raise rates again if inflation risks remain. Macklem also said he doesn’t expect a recession in Canada, predicting slower but positive growth for several quarters as a baseline scenario.

Trading recommendations

• Support levels: 1.3468,1.3436,1.3397,1.3267
• Resistance levels: 1.3535,1.3589,1.3589,1.3647,1.3667,1.3695

From the point of view of technical analysis, the trend on the USD/CAD currency pair in the medium term is still bearish. But at the moment, the price is forming a wide-volatile corridor with signs of bullish pressure. The MACD indicator has become inactive. The flat structure makes it difficult to find good entry points. Under such market conditions, buy trades are best sought from the support level of 1.3468, but with confirmation in the form of a false breakdown and buyers’ reaction to the level. Sell positions are best sought from the resistance level of 1.3535 but with confirmation in the form of a sellers’ initiative as well.

Alternative scenario:

by JustMarkets, 2023.05.22