USD at Support; EUR/USD and GBP/USD Shaking Hands with Resistance

Charts: TradingView

Daily Economic Review

The US dollar—measured by the US Dollar Index—touched a low of 105.34 on Tuesday, influenced by soft PPI inflation. The US Producer Price Index, compared with a year prior in October, increased 8.0%, versus September’s increase of 8.4%, according to the Bureau of Labour Statistics.

Year-on-year core PPI inflation for October also rose 5.4%, following September’s 5.6% increase. This adds to the somewhat growing evidence of subsiding inflation and could see the US Federal Reserve begin slowing its aggressive tightening policy.

In the FX space, the release immediately guided the US dollar lower, underpinning several G10 currencies, such as the euro, the pound and the Australian dollar. As a quick note, the PPI, one of the indicators used by the US Federal Reserve to assess developments in the economy, is a measure of the price change over time at the wholesale level (wholesale inflation). It is not the Consumer Prices Index (CPI).

Manufacturing activity in New York, based on the Empire State Manufacturing Survey, revealed that business conditions in the area improved, rising to 4.5 in November from -9.1 recorded in October. According to the survey, it is the first positive reading since July. Furthermore, 33% of respondents stated that conditions had improved over the month.

Across the pond, another noteworthy mention in the macroeconomic space on Tuesday was UK jobs data. The unemployment rate ticked higher to 3.6% in the three months to September (from 3.5% in the three months to August).

US Dollar Index at Support

As a reminder, the US Dollar Index is testing support.

For those who read the Weekly Market Review and Outlook, you may recall the following text (italics):

Fibonacci enthusiasts may acknowledge a Fibonacci cluster (50% retracement is not a Fibonacci ratio) entered the frame on Friday between 105.82 and 106.47. This, together with a neighbouring Quasimodo formation coming in from 105.05 and the nearby 200-day simple moving average (104.89), indicates a potential floor emerging from this area this week. The relative strength index (RSI) clocked its lowest levels since April 2021, threatening oversold conditions which coincides with channel support, drawn from the low of 47.90.

In terms of the greenback’s trend direction, we have now witnessed several lower lows/highs take shape since the Dollar Index peaked at 114.78 in late September. This indicates a downtrend, though given the uptrend was in play since June 2021 it is still too early to estimate.

Therefore, overall technical studies shine the spotlight on support between 105.05 and 106.47 this week, which shares a close connection with the 200-day simple moving average. Movement beyond the noted structures, of course, will add weight to the early downside bias recently seen.

EUR/USD: At an Interesting Technical Juncture

Price action on the weekly timeframe has been rooted in an unmistakable bear trend since pencilling in a top in early 2021, with the recent pullback of 10.0% standing as the only notable upside correction since the said trend emerged. Also of technical relevance on the weekly scale is the break of resistance at $1.0298, which, as you can see, is now being retested as support. Overhead, scope is seen to approach Quasimodo support-turned resistance at $1.0778.

This is where it gets interesting.

While the weekly timeframe shows price retesting resistance-turned support from $1.0298, the daily timeframe has price action challenging the lower side of resistance coming in at $1.0377 and the 200-day simple moving average (currently fluctuating around $1.0427).

In addition to the relative strength index (RSI) seen on the verge of testing overbought space and channel resistance, etched from the high 55.09, another notable technical observation is Tuesday’s candle forming a shooting star formation (a bearish signal following an up move).

Although the trend is beginning to show signs of strength on the daily timeframe (consecutive higher highs/lows), the weekly timeframe clearly shows this market’s trend direction is facing only one way for the time being: south. As such, sellers making a show from daily resistance and the 200-day simple moving average should not surprise.

GBP/USD: Active Weekly Resistance

Sterling ended the session higher against the US dollar on Tuesday, with the GBP/USD trading 0.5% higher on the week.

Weekly resistance is a standout technical observation at $1.1990, sheltered just south of another weekly resistance base at $1.2263. You will also note on the weekly timeframe that despite the currency pair staging a rather impressive pullback of nearly 16% from the record low of $1.0357, a downside bias remains evident (since early 2021).

From the daily timeframe, additional resistance is seen nearby around $1.2052, made up of a 50% retracement from $1.2052, a 100% projection at $1.2073 and a 1.272% Fibonacci projection at $1.2078 (1.272 is derived from the square root of 1.618, which is the inverse of 0.618). You will also acknowledge that just north of the noted resistance structure, a 200-day simple moving average is seen at $1.2246.

In terms of the daily chart’s relative strength index (RSI), we have seen the indicator’s value test the upper limit of resistance between 60.00 and 50.00. Venturing above here could lead to overbought conditions materialising.

Therefore, with weekly price testing resistance at $1.1990, a test of daily resistance from around $1.2052 may encourage a bearish scenario.

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