Dollar Steadies as Profit Taking Sets In

13 July 2022, 02:01

Market Focus

US stocks declined on Tuesday amid fears that aggressive rate hikes will drag the economy into a recession ahead of Wednesday’s key inflation report. Slowing economic growth and soaring inflation continued to weigh on investors’ mood across financial markets, as economists say that June’s worsening inflation might force the Federal Reserve to gear up for another big rate hike. Meanwhile, escalating fears about a global recession made market participants flee to the safe-haven greenback for safety while exerting bearish pressure on equity markets. In the Eurozone, macroeconomic data showed that the Economic Sentiment plunged to -53.8 in July, much worse than the previous -28 and missing expectations. The energy crisis in the area, supply chain disruptions and the ECB’s intentions to hike interest rates all dragged the Euro lower.

The benchmarks, S&P 500 and  Dow Jones Industrial Average both dropped on Tuesday as the market is showing nervousness about a global recession and a possible 75 bps rate hike in July by the Fed. The S&P 500 was down 0.9% on a daily basis and the Dow Jones Industrial Average declined with a 0.6% loss for the day. All eleven sectors stayed in negative territory with the energy and information technology sectors were the worst performing among all groups, losing 2.03% and 1.34%, respectively. The Nasdaq 100 meanwhile declined the most with a 1.0% loss on Tuesday, while the MSCI World index fell 0.8%.

Main Pairs Movement

The US dollar remained steadily on Tuesday, losing its upward momentum after touching daily high 108.500 level during Asia session. The DXY index stopped its bullish atmosphere sustained for several days as investors waited for the oncoming US inflation report scheduled on Wednesday.

GBP/USD rebounded from a daily low 1.1810 level to around 1.1900 on Tuesday as US dollar became mild during Asia session. The Bank of England governor said there are alternatives to 25bps rate hikes in the table, adding he expects inflation to fall sharply next year. Meanwhile, EUR/USD also rebounded from a 20-year low of 1.0000 during the Asia session to close at around 1.005 at the end of day. Fears of slowdown on economic growth and the aggregation of Fed accentuate the importance of the oncoming inflation report.

Gold declined with a 0.3% loss on Tuesday, although there was a rebound during the Asia session as the US dollar retreated. However, gold is still under bearish pressure ahead of the CPI report announcement on Wednesday, closing at $1728 at the end of day. Meanwhile, WTI dropped nearly 8% on Tuesday as oil fell sharply during the NY session over the concern that China could enter another round of Covid-19 lockdowns.

Technical Analysis

USDJPY (4-Hour Chart)

USDJPY heads into a correction phase after reaching a 24- year peak. The corrective pullback seems to be some profiting taking ahead of the US CPI on Wednesday. Technical speaking, USDJPY witnesses some profiting- taking aftering hitting the upper bound of the bullish channel as well as the immediate resistance of 137.75. However, the outlook of USDJPY remains bullish as it continues to trade within the ascending channel and above the 20 Simple Moving Average. As long as USDJPY stays above 135.00 mark, the upside momentum is expected to remain unchanged. On the flip side, failure to hold above 135.00 would erode its bullish outlook on the four- hour chart. Further price action has eyes on the US CPI report. 

Resistance:  137.75

Support: 136.27, 135.36, 134.62

GBPUSD (4-Hour Chart)

GBPUSD extended its recovery on Tuesday, trading above 1.1900 in the second half of the day. The US dollar faces some difficulties to advance ahead of the US CPI report. From the technical perspective, GBPUSD staged a modest recovery after hitting the pivotal support of 1.1807. The intraday outlook remains bearish as the pair still trades within the descending channel. Recent recovery might be a correction due to the RSI indicator on the four-hour chart falling into the oversold territory. In order to claim GBPUSD’s upside momentum, it has to advance above 1.1994. On the contrary, failure to defend the support level of 1.1807 would bring the pair further south.

Resistance: 1.1994, 1.2110, 12203

Support: 1.1807

EURUSD (4-Hour Chart)

EURUSD was once trading as low as 1.0000, but has managed to climb into positive moves during the American trading session ahead of the US inflation data. From a technical point of view, EURUSD maintains its bearish stance as its lower leg has been built; however, the psychological support of 1.0000 would be hard to compromise. The recent advance could be EURUSD’s correction as the RSI indicator has reached the oversold territory, suggesting a pullback. To the upside, EURUSD would need to climb above the midline of the Bollinger Bands in order to claim its bullish stance in the near- term picture. 

Resistance: 1.028, 1.0453, 1.0593

Support: 1.0000