EUR/USD, GBP/USD and USD/JPY continue to be driven by dollar dominance
The dollar looks to continue its ascent, but will the upcoming core PCE inflation data after the February dollar dominance for EUR/USD, GBP/USD and USD/JPY?
EUR/USD declines signal growing confidence of wider reversal in play
EUR/USD has been losing ground over the course of February thus far, with the price taking out each Fibonacci support level one by one. The wider uptrend seen over the course of October-January does highlight the potential for that we are looking at a wider retracement phase here.
However, with the price now having moved through all Fibonacci levels, we are looking increasingly likely to end that wider bullish trend by breaking below the $1.0483. We are still some distance from that level, but it does look likely that this downtrend will continue to play out as the dollar comes back into favour. Today’s core personal consumption expenditure (PCE) inflation data will be key in driving sentiment.
In terms of the price action, the latest leg lower took place off a swing-high of $1.0703. As such, any near-term upside would look a retracement unless we see that $1.0703 level taken out. Until then, bearish positions remain in favour.
GBP/USD reverses lower following recent rebound
GBP/USD looked to provide us with a potential selling opportunity earlier this week when the price rallied into the 61.8% Fibonacci level off the back of the strong UK purchasing managers’ index (PMI) figures. Ultimately the bullish dollar trend has kicked back in, with expectations of higher for longer rates bringing GBP/USD lower once again.
The subsequent decline still has plenty to play out, with the price currently moving towards the $1.1915 support level. Below that, look for a move down through $1.1915 to continue the downtrend that has been playing out over the course of this month. We would ultimately require a push up through $1.227 to bring an end to this bearish outlook.
USD/JPY grinds higher on hawkish Fed
USD/JPY has been an interesting case, with the Yen strength brought about via rising Japanese inflation recently being negated by a hawkish shift from the Federal Reserve (Fed). That has brought price up through the ¥134.77 swing-high, signalling the expectation that we could see further upside. With the pair on a relatively slow ascent, we are likely to see significant retracements here.
With that in mind, further upside does look likely but could provide nice deep short-term retracements like the 76.4% pullback seen overnight. Longs are favoured until this intraday pattern of higher lows comes to an end. That means a break below ¥133.92 would be required to bring a more neutral picture into play.
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