The Analytical Overview of the Main Currency Pairs on 2023.01.19

The EUR/USD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.0786
• Prev. Close: 1.0793
• % chg. over the last day: +0.06%

Yesterday, the latest inflation data was published in Europe. The report showed that consumer prices (including the core inflation) remained unchanged compared to the previous month. This raises the possibility of a 0.5% rate hike by the ECB at its next meeting. In the US, widespread declines in key components of retail sales and growing signs that inflationary pressures are declining rapidly mean we are very close to a Federal Reserve rate hike. A 0.25% Fed rate hike in February is considered the most likely (92%) scenario today. Narrowing the differential between the US Fed and ECB rates in the short term would help strengthen the euro.

Trading recommendations

• Support levels: 1.0780,1.0710,1.0650,1.0597,1.0535,1.0497,1.0480
• Resistance levels: 1.0835,1.0867

The trend on the EUR/USD currency pair on the hourly time frame is still bullish. The price forms a price corridor and trades below the moving averages, rebounding from the daily resistance level. The MACD indicator has become negative, with signs of divergence persisting. Sell pressure begins to dominate within the day. 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 1.0835, but better with confirmation in the form of a reverse initiative.

Alternative scenario:

if the price breaks down through the support level of 1.0710 and fixes below it, the downtrend will likely resume.

The GBP/USD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.2284
• Prev. Close: 1.2343
• % chg. over the last day: +0.48%

The UK inflation rate declined from 10.7% to 10.5% year-over-year. Core inflation (excluding food and energy prices) remained at 6.3%. The underlying factor behind the decline in inflation is the December decline in energy prices. Money markets are strongly in favor of a 50 basis point gain at the Bank of England’s February meeting. With no important UK data scheduled before the meeting, the likelihood of such a scenario is extremely high. And with the US Fed likely to cut the rate hike to 0.25%, it could give sterling additional support against the US dollar.

Trading recommendations

• Support levels: 1.2296,1.2220,1.2145,1.2080,1.2000,1.1928,1.1875,1.1684
• Resistance levels: 1.2375,1.2446,1.2519

From the technical point of view, the GBP/USD currency pair trend on the hourly time frame is bullish. The price is trading above the levels of the moving averages. The MACD indicator is in the positive zone, but the presence of divergence and the daily resistance is still limiting 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 1.2296, but with confirmation. Sell deals are best sought from the resistance level of 1.2375 but also better with confirmation 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: 128.12
• Prev. Close: 128.90
• % chg. over the last day: +0.61%

Volatility in the currency pair USD/JPY has risen sharply in recent days, as investors expected the Bank of Japan to start moving towards a normalization of monetary policy, which did not happen. The Japanese yen, which has long been considered a safe haven and a funding currency, in recent weeks has become so mired in market speculation over central bank policy that Wednesday’s decision to maintain the soft policy caused the yen to fall sharply in almost three years. Meanwhile, the dollar’s fall on PPI news compensated for the yen’s weakness. Analysts still expect the Bank of Japan to abandon its yield curve control policy soon. Some investors expect the Central Bank to use inflation growth data and the change of governor of the Bank of Japan in April as an excuse to take action.

Trading recommendations

• Support levels: 127.53,126.19
• Resistance levels: 130.05,131.34,132.37,132.95,133.23,134.45,135.88

From the technical point of view, the medium-term trend on the currency pair USD/JPY is still bearish. The price did not manage to consolidate above the priority change level. The MACD indicator has become negative again, and within the day again, sales prevail. It is best to look for buy trades from the support level of 127.53, but only with confirmation within the day. Sell deals can be sought from the resistance level of 130.05, provided that there is a reverse reaction.

Alternative scenario:

If the price fixes above the resistance level of 131.34, the uptrend will be renewed with a high probability.

The USD/CAD currency pair

Technical indicators of the currency pair:

• Prev. Open: 1.3389
• Prev. Close: 1.3493
• % chg. over the last day: +0.77%

The Canadian dollar is a commodity currency and is highly correlated with instruments such as the dollar index and oil prices. Oil prices retreated from Wednesday’s highs amid the opening of the Chinese economy, as US manufacturing and retail trade data failed to meet economists’ expectations. The USD/CAD just soared as the dollar strengthened at the end of the trading day. But it is worth understanding that the US dollar is under the pressure of the weak economic data now, with the US Fed planning to lower the pace of rate hikes. Considering the medium-term forecast for growth in oil prices, yesterday’s growth of USD/CAD may be temporary.

Trading recommendations

• Support levels: 1.3438,1.3396,1.3212
• Resistance levels: 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 close to changing to a bullish one. The price has reached the priority change level but has not yet broken through it. The MACD indicator has become positive. Under such market conditions, sell trades can be considered from the resistance level of 1.3513 with additional confirmation in the form of a false breakout. Buy trades should be considered from the support level of 1.3438 or 1.3396, but only with short targets and confirmation.

Alternative scenario:

if the price breaks out and consolidates above the resistance level of 1.3513, the uptrend will likely resume.