USD Stabilises After Initial Jump

Jun 18 21, 10:47 GMT

The USD tended to stabilize against a number of its counterparts during today’s Asian session, after the initial gains it had displayed given the Fed’s hawkish surprise on Wednesday, which sent it to an almost two month high. It should be noted that US stockmarkets closed with mixed results as the markets still try to digest the Fed’s new guidance with Nasdaq marking a considerable jump and closing at record highs while Dow Jones retreated a bit. At the same time Gold’s prices were not able to benefit from the movement of the US yields which tended edge lower, at least the 10 year US Treasury yield. Financial releases yesterday were a bit disappointing as the weekly initial jobless claims figure rose instead of dropping and reaching a new post pandemic low while economic activity in the wider Philly area seems to have slowed down more than expected. Today we may see fundamentals taking the lead regarding USD’s direction, given that no high impact US financial releases are scheduled yet we highlight the speech of Minneapolis Fed President Kashkari which is considered as quite dovish.

The USD index rose yesterday breaking the 91.75 (S1) resistance line, now turned to support. We tend to maintain a bullish outlook for the index, yet some stabilisation is also possible given that the RSI indicator below our 4-hour chart is still clearly above the reading of 70, confirming the bulls dominance on the one hand yet on the other it may imply that the index is overbought and a correction lower may be in the cards for the USD index. Should the bulls maintain control over the index’s direction, we may see it breaking the 92.30 (R1) resistance line and aim for the 92.75 (R2) level. Should the bears say enough is enough and reverse the index’s direction we may see it breaking the 91.75 (S1) support line and aim for the 91.30 (S2) level.

GBP slips as Covid spreads rapidly

The pound tended to weaken against the USD and JPY but not against EUR and CHF yesterday, yet fundamentally seems to be puzzling traders. It seems that the number of new daily cases of Covid is rising in the UK reaching yesterday a new record high at 11k since the last wave that struck the UK and ended back in February. It should be noted that the cases are on the rise despite a wide part of the UK population having received at least one vaccine shot as the UK Government has stated that 8 in 10 adults have now had their first vaccine shot. On the monetary front, we highlight BoE Haldane’s comments that the UK economy may be near pre-pandemic output levels which sounds quite optimistic and may reflect the confidence of England’s central bank. Today besides fundamentals we also expect pound traders to focus on the release of UK’s retail sales for May, which are expected to slowdown.

GBP/USD dropped yesterday decisively distancing itself from the 1.3990 (R1) resistance line. We tend to maintain a bearish outlook for cable, yet the pair may show some signs of stabilization. The RSI indicator below our 4-hour chart seems to remain just below the reading of 30 also supporting the notion that the bears are still in the neighbourhood, yet at the same time may imply that a correction higher is also possible. Should cable find renewed selling orders along its path, we may see it breaking the 1.3845 (S1) support line and aim for the 1.3670 (S2) level. Should a buying interest be displayed by the market we may see the pair breaking the 1.3990 (R1) resistance line and aim for the 1.4145 (R2) level.

Other economic highlights today and the following Asian session:

With a rather light calendar today, during the European session, we note Germany’s producer prices for May and UK’s retail sales growth rate for May. Oil traders may be interested in the release of the weekly Baker Hughes US oil rig count while during Monday’s Asian session we get Australia’s preliminary retail sales for May.

USD Index H4 Chart