The EUR/USD pair kicked off the week on a downtrend, aligning with the prevailing strength of the US dollar against a basket of currencies.
Possible technical scenarios:
According to the daily chart, the EUR/USD pair broke out the support at 1.0888. Sustained consolidation below this level could pave the way for a southward movement towards 1.0801. An alternative scenario involves a rebound, leading the pair back to the 1.0888 - 1.000 range.
Fundamental drivers of volatility:
This week, EUR/USD faces pressure from the ascending US dollar. By midweek, the US currency had reached a one-month high, fueled by statements from a member of the Federal Reserve Board of Governors Christopher J. Waller, dampening expectations of an imminent interest rate cut in March. Waller emphasized a cautious approach, suggesting that the Fed should not hastily reduce its basic interest rate until it is evident that lower inflation is stable enough.
According to CME's FedWatch Tool, market expectations for a rate cut in March declined from 76.9% to 62.2%.
Wednesday's release of the US retail sales report for December at 1:30 p.m. (GMT) is a crucial event. The month-over-month Core Retail Sales Index is anticipated to remain steady at 0.2%, with retail sales expected to rise from 0.3% to 0.4%. Any deviation from these forecasts may amplify US dollar volatility.
Intraday technical picture:
As we can see on the 4H chart, the EUR/USD pair consolidates below 1.0888. Aside from that, a bearish flag was formed during the descent, setting the stage for a potential price weakening toward the 1.0801 level.
The GBP/USD pair witnessed a decline this week due to the ascending US dollar, yet data from the UK alleviated some pressure on the price.
Potential technical scenarios:
Amidst the descent, GBP/USD reached 1.2608 but managed to remain above it. Bouncing back, quotes surpassed the 1.2656 level, thereby unlocking a path for the price to approach the resistance at 1.2792.
Fundamental drivers of volatility:
The US dollar's upward trajectory persists this week, fueled by US data and commentary from monetary officials, which has tempered expectations of an impending interest rate cut in March.
A member of the Federal Reserve Board of Governors Christopher J. Waller emphasized a cautious approach, advising against a hastily implemented reduction in the basic interest rate until it is evident that lower inflation is stable.
On the pound's front, the week brought forth notable developments. Tuesday saw the sterling pressured by data revealing a deceleration in wage growth in the UK. That being said, on Wednesday, the pound rebounded following news that the UK's annual consumer inflation rate had increased for the first time in 10 months in December. This development cast uncertainty on expectations of a coming rate cut by the Bank of England.
The US dollar's dynamics on Wednesday at 1:30 p.m. (GMT) could be influenced by the release of the US retail sales report for December, while the pound may be particularly responsive on Friday to UK retail sales data for the same period.
Intraday technical picture:
The 4H chart of the GBP/USD pair demonstrates the emergence of a bullish engulfing pattern at the support within the 1.2608-1.2792 corridor lays the groundwork for potential further strengthening of the price towards its resistance.
The AUD/USD pair continues its descent, influenced by the widespread strengthening of the American currency.
Possible technical scenarios:
Analyzing the daily chart, the AUD/USD pair has slipped below the 0.6582 level. If this level manages to hold as a resistance, the decline may persist towards the subsequent target to the south at 0.6498.
Fundamental drivers of volatility:
The primary force behind the downward pressure on the AUD/USD pair is the ascending US dollar, which reached a one-month high against a basket of currencies by Wednesday. The dampening of expectations for a Fed rate cut in March gained momentum with comments from Fed member Christopher J. Waller. Waller emphasized a measured approach, advising against precipitous cuts to the benchmark interest rate until it is evident that lower inflation is stable.
Against this backdrop, market expectations for a rate cut in March dwindled to 62.2%, down from the previous 76.9%.
In Thursday's Asian session, the Australian dollar might experience a fluctuating response to the labor market report, although it is improbable to rectify the technical outlook. Forecasts indicate an anticipated change in employment levels at 16.1 thousand, a decline from the preceding period's figure of 61.5 thousand. The unemployment rate is projected to hold steady at 3.9%.
Intraday technical picture:
Judging by the look of the unfolding situation on the 4H chart of the AUD/USD pair, an interim level at 0.6541 marked with dotted lines stands as a critical point for the price to surpass for further decline. Failure to break out this level may result in the pair consolidating within the range between 0.6541 and 0.6541 until a fundamental catalyst emerges, prompting the pair to exit this corridor.
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