Mid-Week Technical Outlook: G10 FX In Focus

A sense of tension and anticipation gripped financial markets on Wednesday as investors digested new inflation readings ahead of the US Federal Reserve’s monetary policy decision.

UK inflation cooled from a 41-year high in November, offering some relief to hard-squeezed households. Consumer prices eased to 10.7% last month, from 11.1% witnessed in October which was the highest level seen since October 1981. This encouraging report comes after US inflation hit its lowest level since December 2021 at 7.1%. With the softer-than-expected inflation figures fuelling expectations over the Fed slowing its pace of rate increases, the dollar collapsed like a house of cards.

All eyes will be on the Federal Reserve meeting this evening, followed by the BoE and ECB meeting on Thursday. The Fed is widely expected to shift into lower gear on rates in December, hiking by 50 basis points compared to the 75-basis point increases they’ve done over the last four policy meetings. Markets widely expect the ECB and BoE to also hike rates by 50 basis points this month. Ultimately, whatever the outcome of the upcoming policy meetings, it may set the tone for FX markets for the rest of 2022.

Before these major high-risk events, our focus falls on G10 currencies with our tool of choice nothing other than technical analysis.

DXY pummelled & pounded

The dollar got no love on Tuesday after US consumer prices rose less than expected for a second straight month. Bear charged into the scene, dragging the Dollar Index (DXY) below 104.00 for the first time since June 2022. Prices remain heavily bearish on the H4 timeframe with the downside momentum potentially sending prices towards 102.40. A move back above 104.00 could result in a rebound toward 105.50.

Equally weighted USD below 200 SMA

After securing a daily close below the 200-day SMA, the equally weighted USD index could be poised for further downside. Prices remain heavily bearish on the daily charts as there have been consistently lower lows and lower highs. The daily close below 1.1740 could encourage a further decline towards 1.1600. If bulls are able to push back above the 200-day SMA, the next key level of interest can be found at 1.1950.

EURUSD in healthy uptrend

Bulls remain in firm control of the EURUSD. Not only have there been consistently higher highs and higher lows but prices are trading above the 50, 100, and 200-day SMA. The recent breakout above 1.0600 could signal an incline toward 1.0760.  A move back below 1.0600 may trigger a selloff towards 1.0460 and 1.0400, respectively.

GBPUSD breaks above 1.2300

A weaker dollar propelled the GBPUSD above the 1.2300 resistance level yesterday. Prices are firmly bullish on the daily charts with the next key point of interest at 1.2460. If bulls are able to conquer this level, the upside momentum could send prices toward 1.2500 and higher. The bullish outlook remains valid as long as prices remain above 1.2120 – where the 200-day SMA resides.

AUDUSD eyes 0.6900

The Aussie continues to push higher thanks to a weaker dollar. Prices remain firmly bullish on the daily charts with the next key level of interest found at 0.6900 – where the 200-day SMA resides. Above this level, the AUDUSD may challenge 0.7000.

USDCHF extends downside

Little needs to be said for the USDCHF which remains heavily bearish on the daily charts. The recent break below 0.9300 could encourage a further selloff towards 0.9200 and 0.9150. Bears remain in control below the 0.9350 level.

USDCAD back within range

It looks like the USDCAD has found itself back within a range with support at 1.3502 and resistance at 1.3700. A breakout could be on the horizon which may set the tone for the currency pair for the rest of 2022. If 1.3502 proves to be unreliable support, a decline back toward 1.3390 could be on the cards. Alternatively, a breakout above 1.3700 may open the doors towards 1.3840.

USDJPY flirts around 200-day SMA

The USDJPY could be gearing up for a steeper decline if prices secure a solid daily close below 134.00. There have been consistently lower lows and lower highs while prices are trading just below the 200-day SMA. Bears are certainly in control with another bout of dollar weakness opening a path toward 131.50.

EURUSD GBPUSD AUDUSD USDJPY USDCAD USDCHF DXY Federal Reserve BoE ECB inflation