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the pair registered its sixth straight profitable day on Monday, boosted by the latest RBA and Fed monetary policy decisions, but faces difficulties today at a region it has rejected before
FXCM's USDOLLAR daily chart shows the low volatility of the right shoulder. Its Bollinger bands are squeezing tightly. Markets cannot stay at rest for long, so the squeeze suggests an expansion of volatility may be expected soon.
The pair extended its gains today, as wages rose further in the first quarter in New Zealand, putting pressure on inflation and the central to maintain its hawkish stance
The pair faces difficulties this week, with mixed Eurozone inflation figures blurring the monetary policy outlook ahead of the decisions by the US Fed and the European Central Bank
The Reserve Bank of Australia stunned markets by restarting its rate hike cycle today, sending the pair higher, but the upcoming policy decision by the US Fed looms
Today’s data showed that CPI inflation moderated to 7% y/y in the first quarter in Australia, not long after the country’s central bank had paused its year-long rate hike cycle
There is an air of uncertainty, with participants unsure of what comes next for markets. A large part of this is that markets are hesitant of how Fed monetary policy plays out and are looking at Q1 GDP and core PCE for direction (released Thursday and Friday at 12:30 GMT).
Given the lag on the EU inflation front, the ECB will need to be more aggressive than the Fed for at least the medium term. This is reflected in the spread between the German (proxy for EU) and US 2-year notes. This is because short-term borrowing costs react quickly to changes in monetary policy.
Yesterday saw a higher-than-expected average earnings index (3m/y) out of the UK at 5.9% (vs 5.1%-forecast). Today inflation has proved persistent with headline CPI (y/y) at 10.1% (vs 9.8%-forecast) and core CPI (y/y) at 6.2% (vs 6.0%-forecast). This suggests at least another 25bps hike from the BoE in May.
Yesterday, the EURUSD slipped from its bullish channel between the upper blue and red bands. Today, it is looking to reclaim that position. The daily RSI is above 50. The longer it maintains on the bullish side of 50, the greater the chances of higher prices ahead.
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