It seems that the Greenback is king of the currency hill again! It brought sexy back thanks to the combination of comments from the G-7 finance ministers, speculations on the Fed’s future monetary policy, and good old positive data.
The Fed is supposedly starting to draft plans to reverse its ultra-loose monetary policy. According to central bank officials, they want to decrease the amount of bonds they buy in slow and potentially halting steps, changing their purchases as their confidence about the labor situation and inflation improves. The timing, however, is still being discussed.
The dollar also received a lot of support from the finance ministers who attended the G-7 summit. Policymakers from the world’s most influential economies did not criticize the yen’s recent strength, which the market took as a sign that they were all in approval with what the Bank of Japan (BOJ) is doing.
As for economic data, the U.S. initial jobless claims surprised to the upside. It came in at 323,000, lower than the 333,000 forecast. It was in line with the positive results of the non-farm payrolls. Boo yeah!
Given all these, I expect the dollar rally to continue this coming week. Heck, the Fed is thinking about withdrawing its stimulus measures while other central banks are thinking about loosening their monetary policies even more. To top it off, positive figures have been coming out of the U.S. which only supports the Fed’s tightening!
With the pair convincingly falling below both the 200 and 100 SMAs, I think the overall directional bias has changed. I’m looking to sell on a pullback, probably at the 50% Fibonacci retracement level.
The setup on EUR/USD is also pretty similar to the one that GBP/USD is sporting. On the hourly chart, we see that the pair could find resistance around the 50% and 61.8% Fibonacci retracement levels which line up nicely with the SMAs and broken trend line. I’ll be eyeing reversal candles somewhere between 1.3050-1.3100 before pulling the trigger.