Forex

The hourly stochastic has made its way to its upper quintile. The longer it maintains this position, the better the chances of further USDOLLAR price appreciation.

FXCM’s USDOLLAR basket’s daily chart continues to trade in its bullish channel between the upper blue and red bands. The hourly chart is also showing positive developments. Its trend following EMAs and momentum based- stochastic have crossed. Development of angle and separation by the EMAs and movement by the stochastic into the 80+ area (blue arrow) will be a bullish development.

The pair advanced last week and remains stuck within the daily Ichimokou Cloud, as markets brace for Mr Powell’s two-day Congress testimony, which starts on Tuesday

The EURUSD daily candlestick chart is positioned in its weak channel, between the lower blue and red bands. It was pushed back into the soft area after moving out.

ISM Manufacturing data was released yesterday, printing at 47.7. A value under 50 shows contraction, whilst values above 50 are expansionary. There is concern over one component of the data - ISM Manufacturing Prices. This ticked higher at 51.3. This is a big jump from the previous 44.5 and is much higher than the 45.5 expected.

The pair started the day strong, but erases much of its earlier gains, as BoE Governor Bailey does not commit to more rate increases

Overnight, Australian CPI y/y showed signs of moderation, printing at 7.4%, lower than the expected 8.1% and the previous 8.4%. GDP was also softer at 0.5% q/q - 0.8% q/q was expected. After the release, the spread between the AU and US 2-year notes declined (red rectangle). This suggests that the RBA is less hawkish than the Fed. Markets still expects the RBA to lift rates next week, even if…

FXCM’s dollar basket is trading in its bullish channel between the upper blue and red bands. This is in the daily timeframe. Its stochastic is trading above 80. This denotes a strong underlying upwards momentum.

The top chart shows the US 10-Year real rate and the middle chart is the EURUSD. The correlation coefficient (cc) between the two series is -61% (bottom indicator). This correlation does not always hold true, but it has been the dominant relationship since March 2022.

Core PCE ticked up to 4.7% y/y from the previous 4.6% y/y. Markets are now betting on 25bps hikes by the Fed for March, May and June, which would take the target rate to the 5.25%-5.50% range. The monthly core PCE printed at 0.6% m/m, greater than the previous 0.4% m/m and larger than the 0.4% consensus. Annualised, this gives a worrying 7.44%, much higher than the Fed 2% average…

Money is seeking the safety of the dollar ahead of the core PCE release. On the hourly chart, the trend following EMAs and the momentum-based stochastic have crossed up. Market participants are worried that inflation remains resilient. Here, the Fed will need to remain hawkish and tighten further, which will negatively affect the present value of risk assets.