Yen Catches A Break On Dollar Weakness

1 July 2022, 02:08

Market Focus

US stock markets fell on Thursday as the S&P 500 capped its worst first half of the year in more than 50 years. The Dow Jones Industrial Average slid 0.8%, the tech-heavy Nasdaq Composite dropped 1.3%, and the S&P 500 was down 0.9% at the end of the day. The market seems to have been forced to adjust back to reality  after an unprecedented pandemic and monetary policy.

US natural gas futures contracts plummeted 16%, the worst performance in more than three years. The plunge came after an inventory report showed a larger-than-expected storage build, raising concerns over an oversupplied market.

Cryptocurrency exchange FTX is closing a deal to buy struggling cryptocurrency lender BlockFi for $25 million in a fire sale, well below BlockFi’s last valuation. The deal came after FTX provided a $250 million emergency credit to BlockFi. The fallout for BlockFi, a crypto lending company, happened following the major sell-off and the major plunge of crypto assets. Funds have struggled with liquidity issues as counterparties fail to maintain and meet margin calls.

Main Pairs Movement

WTI price plunged 3.44% on Thursday following the news that OPEC+ decided to stick with the planned oil production hike. With the original plan, the Middle East will increase monthly production to 648,000 barrels per day in August.

AUD/USD edged 0.40% higher, closing with 0.69013. The Australian dollar outweighed the greenback following the concerns that a more aggressive move by major central banks might pose challenges to global economic growth.

EUR/USD advanced 0.43%, finishing with 1.04836 at the end of the day. The advance came as Fed Chairman Jerome Powell clarified that the bigger mistake would be failing to restore price stability.

Gold remained bearish, dropping 0.58%, to $1,807 on Thursday. During the ECB forum, Powell mentioned that the US economy is well-positioned while imposing more tightening policy in response to inflation. The factor has held back the bets on gold, deteriorating the demand for gold.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD gained 0.34% over the course of the previous trading day. The U.S. PCE figures came in at 0.3%, below estimates of 0.4%. However, the year-over-year PCE came in at 4.7%, in line with the Fed’s expectations. Fed Chair Jerome Powell stated during his speech that price stability would still be the priority of the Fed, but it would be a mistake if the central bank sacrifices the economy in order to achieve price stability. On the other hand, ECB president Lagarde’s speech did not shed much light on the central bank’s intentions on interest rates in the near future. On the economic docket, the manufacturing PMI from Germany and the U.S. will be released today during the European trading session and the American trading session respectively.

On the technical side, EURUSD rebounded from our previously estimated support level of 1.038 and is heading up towards 1.0494, which was previously a support level but has since changed polarity and is acting as a short term resistance level. RSI for EURUSD sits at 43.69 as of writing. On the four hour chart, EURUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance:  1.05754, 1.06315

Support: 1.0382

GBPUSD (4-Hour Chart)

GBPUSD gained 0.48% over the course of the previous trading day. The broad based U.S. Greenback allowed the British Pound to rise against the Dollar. During Governor Andrew Bailey’s speech at the ECB’s annual forum on central banking, he stated that the U.K. is currently being hit with a large income shock that could hurt the overall U.K. economy. The BoE continues to be stuck between raising interest rates and a slowing economy as the country faces a different situation as the U.S., where the economy still seems to be healthy. PMI figures from the U.S. will be released during the American trading session tomorrow.

On the technical side, GBPUSD has consolidated around our previously estimated support level of 1.2123 and successfully found demand to trade higher. Resistance at 1.2381 still remains unchallenged. RSI for Cable sits at 41.17 as of writing. On the four hour chart, GBPUSD is currently trading below its 50, 100, and 200 day SMA.

Resistance: 1.2381

Support: 1.2123, 1.20824

USDJPY (4-Hour Chart)

USDJPY retreated 0.68% over the course of the previous trading day. The retreating Dollar snapped a four day winning streak for USDJPY. During his speech at the ECB forum, Fed chair Jerome Powell reaffirmed the healthiness of the U.S. economy and reiterated the central bank’s commitment to trimming inflation with interest rate hikes. The near term decrease of the USDJPY will not be sustained as the Fed and the BoJ continues to adopt diverging monetary policies that will increase the interest rate difference between the two countries.

On the technical side, USDJPY has retreated from our previously estimated resistance level of 136.57, but the pair remains firmly on an upward trajectory. Support level at 134.6 remains unchallenged. RSI for USDJPY sits at 61.13, as of writing. On the four hour chart, USDJPY is currently trading above its 50, 100, and 200-day SMAs.

Resistance: 136.57

Support: 134.6