This week has all the makings of being vital for the coming weeks and months, with the most important publications for the market in focus.
The week’s main event will undoubtedly be the Fed's interest rate decision. More specifically, the comments on the decision and the press conference will follow, where investors and traders will look for answers on when the Fed will stop raising rates. In addition, the ECB and the Bank of England will present their rate decisions, setting the overall agenda for the major central banks. Typically, the other central banks are moving in the same direction, albeit with some deviations.
On the economic data front, the most important releases will be the eurozone inflation figures for January and the US employment figures, which have often set the tone in the past.
As is often the case, the market moved to key levels just before important events. The dollar index fell to 101.60. The local correction in May also ended near the same level. But more importantly, this is the multi-year “ceiling” area in the dollar from which the DXY turned lower in 2017 and 2020.
At the start of last year, the opportunity to rewrite multi-year highs was provided by the Fed’s decisive moves, which hiked three times by 75 points each, something not seen in over twenty years. It will probably take an equally fundamental change in Fed policy to change the market's mode.
As we enter the fourth month of an active dollar sell-off, the market has accumulated fatigue with the trade. This is reflected in the sideways movement of the index over the past two weeks. The lull also sets the stage for a corrective pullback of 3-4%, allowing participants to take medium-term profits and rebalance portfolios.
The potential correction could take the Dollar Index to 104.5, the level at the start of the year and the 76.4% Fibonacci recovery line from the decline from the September high of 114.73 to the January low of 101.26.
However, there is reason to believe that the recovery in the Dollar Index will be more significant, taking it back to the 106.30 area, which is the 61.8% retracement level from that decline and the 200-day moving average.
In terms of the major pairs, a potential dollar correction pullback would take EURUSD from the current 1.09 to 1.06 in a shallow correction and 1.04 if the Fed forces the market to revise its monetary policy expectations. The GBPUSD could then fall to 1.1900 and 1.1630, respectively.
Gold, which the dollar has primarily driven over the last quarter, could fall to around $1870 in the event of a recovery in the dollar and as low as $1820 in a pessimistic scenario.
Trade Responsibly. CFDs and Spread Betting are complex instruments and come with a high risk of losing money rapidly due to leverage. 77.37% of retail investor accounts lose money when trading CFDs and Spread Betting with this provider. The Analysts' opinions are for informational purposes only and should not be considered as a recommendation or trading advice.
Recommended Content
Editors’ Picks
EUR/USD drops below 1.0800 after German Retail Sales data
EUR/USD has come under fresh selling pressure and trades below 1.0800 after the data from Germany showed that Retail Sales declined by 1.9% MoM in February. Resurgent US Dollar demand is adding to the downside in the pair. US data are next in focus.
GBP/USD stays weak near 1.2600 amid market caution
GBP/USD remains defensive near 1.2600 in European trading on Thursday. The hawkish tone from Fed Governor Christopher Waller keeps the US Dollar afloat amid a cautious trading environment ahead of key US data releases and the Good Friday trading lull.
Gold price holds strength ahead of US core PCE inflation
Gold price holds onto gains near $2,200 in Thursday’s European session. The precious metal exhibits firm footing ahead of the United States core PCE Price Index data for February, which will be published on Friday.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.