Dollar likely to weaken across EUR/USD, GBP/USD and USD/JPY
Dollar weakness looks likely to come back into play as EUR/USD and GBP/USD turn higher. Meanwhile a four-decade high for Tokyo inflation brings expectations of further USD/JPY weakness.
EUR/USD consolidating as we await the next leg higher
EUR/USD has been grinding higher over the course of the past month, with the price rising into a nine-month high yesterday. Notably, the pair has been remarkably consistent despite periods of both strength and weakness in equities. Yesterday brought a whole raft of US data, with initial claims, gross domestic product (GDP), and durable goods bringing hopes that we could yet see a soft landing despite the sharp increase in interest rates.
However, for EUR/USD, the story remained the same, with the four-hour pattern of higher highs and higher lows bringing expectation of further upside to come.
A break back below the $1.0766 swing-low would be required to bring a wider pullback into play. Until then, further upside seems likely from here.
GBP/USD returns to key 1.2447 resistance
GBP/USD spent the early part of the week losing ground from the key $1.2447 resistance level, with the prior high representing the intraday turning point for the pair.
However, the latter part of the week has seen us return to that same area, with today’s early declines coming from that same region. With this in mind, it makes sense to await a break through $1.2447 to bring a bullish continuation signal for the pair.
Until then, there is always a risk that the price turns lower from resistance once again. To the downside, a break below $1.2263 would be required to complete an intraday double top formation.
USD/JPY likely to turn lower as Japanese inflation pushes higher
USD/JPY has been on the rise of late, with the pair reversing some of the losses seen earlier in the month. However, overnight data out of Japan highlights the risk of another turn lower here, with the leading Tokyo core consumer price index (CPI) rising to a four-decade high of 4.3%.
That upward trajectory for prices does stand in stark contrast to the declines seen in US inflation. The pressure this creates on the Bank of Japan (BoJ) does bring the potential for further unwinding of the long USD/JPY trade that dominated much of last year. Instead, we now have a clear pattern of lower highs and lows.
As such, this recent rebound looks to represent a retracement phase before the pair turns lower once again. That bearish outlook holds unless price breaks up through trendline and ¥1.3477 resistance.
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