Mid-Week Technical Outlook: Dollar Waits For Powell

A strong sense of anticipation gripped financial markets on Wednesday as investors awaited a speech by Federal Reserve Chair Jerome Powell later in the day.

European shares and US equity futures climbed, while the dollar weakened as market players closely observed the developments in China. The prospects of the world’s second-largest economy loosening its Covid zero policy have boosted sentiment, stimulating risk appetite ahead of a series of key speeches and top-tier economic releases.

Our focus today falls on the dollar which has held its ground so far this week. Dollar bulls were initially supported by hawkish comments from Fed officials on Monday but gains were capped by optimism over a possible loosening of China’s covid restrictions. With Jerome Powell expected to reinforce expectations over the Fed slowing its pace of interest rate increases, this could result in fresh dollar weakness. In the meantime, the dollar seems to be waiting for Powell’s remarks before making its next big move.

Dollar Index gearing for breakdown?

The Dollar Index remains a bearish trend on the daily charts as there have been consistently lower lows and lower highs. Prices are trading below the 50 & 100 SMA while the MACD remains in negative territory. Given how 105.50 is where the 200-day SMA resides, a strong break below this level could signal a strong selloff towards 104.50 and lower. If prices can push back above 107.85, the DXY could challenge the 100-day SMA and 110.00, respectively.  

Equally weighted USD wobbles above 1.1900...

As the subtitle states, the equally weighted USD index remains under pressure on the weekly charts. A breakdown below 1.1900 could signal a selloff towards 1.1700, 1.1600, and 1.1380, respectively. Should prices push back above 1.21840, bulls may challenge 1.2400.

EURUSD capped below 200-day SMA?

Looking at the technical picture, the currency pair is bullish on the daily charts but remains capped around the 200-day SMA. A solid daily close above 1.0450, followed by a move towards 1.0500 could signal that bulls remain in control. Alternatively, a selloff towards 1.0300 could result in a move to 1.0200 and 1.0100.        

GBPUSD remains in bullish trend

Bulls certainly remain in the driving seat on the GBPUSD as there have been consistently higher highs and higher lows. The candlesticks are trading above the 50, 100, and 200-day SMA while the MACD trades above zero. A weaker dollar could encourage an incline toward 1.2150 where the 200-day SMA resides. Beyond this point, prices could test 1.2200 and 1.2350. Alternatively, a decline back below 1.1850 may open the doors towards 1.1750 and the 100-day SMA.

AUDUSD trapped within a range

Over the past few weeks, the AUDUSD has been trapped within a range with support at 0.6580 and resistance around 0.6780. A breakout could be on the horizon with the odds favouring bulls as the dollar continues to weaken. A strong break above 0.6780 may inspire a move towards 0.6900, a level just below the 200-day SMA. If the AUDUSD ends up declining, the first point of interest can be found at 0.6580.