The Analytical Overview of the Main Currency Pairs on 2023.09.21

The EUR/USD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.0679
• Prev. Close: 1.0659
• % chg. over the last day: -0.18%

The dollar index opened lower on Wednesday amid falling bond yields and rising stock indices, which limited the demand for liquidity for the dollar. However, the US dollar recovered losses and moved higher after a dot plot of FOMC interest rate projections showed that policymakers still expect another rate hike this year. The FOMC committee raised the median target for the federal funds rate for 2024 and 2025 by 50 bps. The FOMC voted unanimously to keep the target range for the federal funds rate unchanged at 5.25%-5.50%, but 12 out of 19 policymakers expect another 25 bps rate hike this year. The dollar also received support after the FOMC raised the US GDP forecast for 2023 and lowered the unemployment and inflation forecasts.

Trading recommendations

• Support levels: 1.0635,1.0519
• Resistance levels: 1.0670,1.0698,1.0717,1.0730,1.0768,1.0842,1.0881,1.0943

The trend on the EUR/USD currency pair on the hourly time frame is bearish. The price tested the resistance level at 1.0730, which was followed by a sharp reaction from sellers. The MACD indicator became negative, while there are no signs of reversal. To buy, it is necessary to see the price return above 1.0635 on impulse candlesticks. At the moment, there is no such reaction. Sell deals can be looked for after the price pullback to the moving averages, as the price has deviated strongly from the averages.

Alternative scenario:

if the price breaks through the resistance level of 1.0736 and fixes above it, the uptrend will likely resume.

The GBP/USD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.2383
• Prev. Close: 1.27471.2342
• % chg. over the last day: -0.33%

UK inflation data unexpectedly came out better than expected. The overall inflation rate fell sharply from 6.9% to 6.2% y/y, while core inflation (excluding food and energy prices) fell from 6.8% to 6.7% y/y. A more detailed report showed a decline in service sector inflation, which was a major concern for the MPC amidst rapid wage growth. The Bank of England’s monetary policy meeting will take place as early as today. Analysts are leaning towards the Bank of England to raise the interest rate to 5.5% from 5.25%, but some economists changed their minds after the positive inflation report and now expect a pause. If a rate hike occurs, it is likely to be the last increase in this tightening cycle as the cooling economy is starting to worry policymakers. If the Bank of England takes a pause and sticks to a more dovish and cautious course, mentioning the risks to the economy, it will be negative for the British currency.

Trading recommendations

• Support levels: 1.2307
• Resistance levels: 1.2379,1.2425,1.2461,1.2503,1.2547,1.2611,1.2659,1.2712

According to technical analysis, the GBP/USD currency pair trend on the hourly timeframe is bearish. The price has reached the daily support level, where there is a weak reaction from buyers. It is too early to talk about a reversal, but a corrective movement may develop. The MACD indicator is in the negative zone, and there is a divergence on several time frames. Since the price is in the discount zone, buy trades can be looked at intraday time frames, but only with confirmation in the form of buyers’ reaction. Sell trades are best considered from the resistance level of 1.2379 but with confirmation in the form of sellers’ initiative.

Alternative scenario:

if the price breaks through the resistance level of 1.2425 and consolidates above it, the uptrend will likely resume.

The USD/JPY currency pair

Technical indicators of the currency pair:

• Prev. Open: 147.76
• Prev. Close: 148.18
• % chg. over the last day: +0.28%

The Japanese yen fell against the dollar to an almost 11-month high. Central bank divergence continues to weigh on the yen, with the ECB, Bank of England, and the Fed at the end of rate hike cycles while the Bank of Japan keeps interest rates at record lows. The yen has moved closer to the price level that triggered government intervention last year. The Bank of Japan’s monetary policy meeting will take place as early as tomorrow. After the policy of “flexible” adjustment of the 10-year JGB yield curve was adopted at the previous meeting, no special changes are expected at this meeting. Therefore, all eyes will be on Ueda’s press conference, looking for hints on how confident he is about the inflation trajectory. If Ueda hints that the Bank of Japan is preparing to normalize monetary policy, it may lead to sharp yen buying (USD/JPY fall).

Trading recommendations

• Support levels: 147.75,146.92,145.88,145.39,145.00
• Resistance levels: 148.82

From the technical point of view, the medium-term trend on the currency pair USD/JPY is bullish. The MACD indicator is in the positive zone, and there is still buying pressure. Buying trades should be sought intraday from the moving average levels, provided that buyers react. Sell trades can be looked for if the price returns below the 148.15 level with a change of structure on the lower time frames.

Alternative scenario:

if the price consolidates below the support level of 146.92, the downtrend will likely resume.

The XAU/USD currency pair (gold)

Technical indicators of the currency pair:

• Prev. Open: 1931.92
• Prev. Close: 1930.04
• % chg. over the last day: -0.10%

The dot plot of FOMC interest rate projections shows that policymakers still expect another rate hike this year, with the median Fed Funds rate target for 2024 raised to 5.125% from 4.625% in June, and for 2025, the median Fed Funds rate target raised to 3.875% from 3.375% in June, indicating that the Fed expects to keep interest rates high for longer. This hawkishness has brought confidence back to the dollar index, with government bond yields rising again. And since gold has an inverse correlation to US government bonds, this will have a negative impact on gold pricing in the short term.

Trading recommendations

• Support levels: 1918.92,1913.06,1901.13
• Resistance levels: 1929.00,1937.40,1947.81,1961.06

From the point of view of technical analysis, the trend on the XAU/USD currency pair is bullish. The price reached an important resistance level in the selling zone yesterday, after which a sharp reaction of sellers followed on the FOMC news. The MACD indicator becomes negative, and the selling pressure remains. Buy trades are best sought after a pullback to the support levels of 1918.92 or 1913.06. Sell trades are best sought on intraday timeframes from the levels of 1929.00 or 1937.40, subject to sellers’ reaction.

Alternative scenario:

if the price breaks and consolidates below the support level of 1913.06, the uptrend will likely resume.