Powell comments help strengthen the dollar for EUR/USD, GBP/USD and USD/CAD
The dollar recovery looks to be stalling somewhat, with EUR/USD and GBP/USD consolidating as USD/CNH shows signs of a potential bearish reversal.
EUR/USD steadies itself after Powell-led collapse
EUR/USD saw a bout of sharp losses yesterday, with initial weakness around the $1.0691 resistance level ultimately resulting in a slump as Jerome Powell warned of further monetary tightening to come.
The combination of a relatively strong economy and sticky services inflation brings a need to tighten further according to the Federal Reserve (Fed) Governor, with the ‘terminal rate’ likely to be higher than previously anticipated. Powell’s comments helped drive the dollar sharply higher, with EUR/USD falling back down into a two-month low.
However, the pair has held up at $1.0533 support for now, with sentiment for the day ahead determined by whether we can use that key level to regain lost ground or break lower to maintain the bearish trajectory. Keep an eye out for comments from the European Central Bank’s (ECB) Lagarde this morning, alongside the final eurozone gross domestic product (GDP) and employment change figures.
GBP/USD breaks key support to complete double top formation
GBP/USD has similarly been hit hard over the course of the past 24-hours, with price falling through the critical $1.1841 support level to establish a fresh three-month low. That break finally saw a wider double top formation completed, signalling expectations of further downside to come.
The size of yesterday’s move brings the potential for a retracement rebound at some point, but there will also be an awareness of the fact that Jay Powell makes another appearance in Washington today. With the Fed wishing to remain data dependant, this afternoons automatic data processing (ADP) payrolls report will also be key.
As such, expect further volatility, with a break back below the $1.181 support level required to signal another leg lower for this pair. Meanwhile, a rise through the 20 threshold on the stochastic oscillator would signal an uptick in momentum that could bring a short-term rebound.
USD/CAD rebounds as crude weakens
USD/CAD similarly saw dollar strength take hold yesterday, with price rising into a four-month high. This comes as the value of crude oil fell to the detriment of the Canadian dollar.
Today sees the Bank of Canada (BoC) rate decision, with the committee expected to keep rates steady in a break from the wider experience of higher for longer rates elsewhere. Thus, look out for volatility around the Canadian dollar today.
A break below the 80 threshold on the stochastic could signal a pullback for the pair. Nonetheless, whether we see a retracement or not, the uptrend looks likely to persist going forward.
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