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FOREX: USD Index Set For Near 1% Advance This Week

FOREX
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  • The greenback is a touch softer on Friday as markets have displayed much more contained ranges approaching the weekend close. Despite the USD index slipping back to 109.00, the DXY looks set to post another 0.9% advance this week, and post its highest close since November 2022.
  • Most notable in G10 has been the breach of 1.0335 for EURUSD, as the pair extends the post-election decline to ~5.8%. Since breaking on Thursday, spot has not been back above this level, which now becomes immediate resistance. While there are small supports noted at 1.0198, and 1.0181 (the 2.0% 10-dma envelope), chart levels remain scant between here and parity, which once again becomes a focus going forward.
  • Options markets now price an implied probability of 49% for the pair to touch 1.00 in the coming three months (up from 28% a week ago), and a 21% probability (up from 13% a week ago) of the pair closing below parity at end-Q1.
  • GBPUSD weakness also stood out to start the year, with the pair sinking below 1.2400 to print an 8-month low of 1.2353. Very subdued price action on Friday keeps the medium-term downtrend firmly intact, opening 1.2300, the Apr 22 ‘24 low and an important chart point.
  • USDCAD has risen 0.4% on the session and stands just below cycle highs at 1.4460. We pointed out that the latest pause appeared to be a flag formation - a bullish continuation signal. Immediate sights are on 1.4508 next, a Fibonacci projection level, before 1.4539.
  • Notably USD/CNH rallied to levels above 7.36 once more, close to cycle highs amid concerns over China’s economic struggles. Potentially more significantly, the onshore USD/CNY rate broke above 7.3000 - a long held and long-tested level over the past week or so.
  • Eurozone inflation readings will be a focus at the beginning of next week, and US ISM Services PMI and JOLTS data headline the docket in the US on Tuesday.
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  • The greenback is a touch softer on Friday as markets have displayed much more contained ranges approaching the weekend close. Despite the USD index slipping back to 109.00, the DXY looks set to post another 0.9% advance this week, and post its highest close since November 2022.
  • Most notable in G10 has been the breach of 1.0335 for EURUSD, as the pair extends the post-election decline to ~5.8%. Since breaking on Thursday, spot has not been back above this level, which now becomes immediate resistance. While there are small supports noted at 1.0198, and 1.0181 (the 2.0% 10-dma envelope), chart levels remain scant between here and parity, which once again becomes a focus going forward.
  • Options markets now price an implied probability of 49% for the pair to touch 1.00 in the coming three months (up from 28% a week ago), and a 21% probability (up from 13% a week ago) of the pair closing below parity at end-Q1.
  • GBPUSD weakness also stood out to start the year, with the pair sinking below 1.2400 to print an 8-month low of 1.2353. Very subdued price action on Friday keeps the medium-term downtrend firmly intact, opening 1.2300, the Apr 22 ‘24 low and an important chart point.
  • USDCAD has risen 0.4% on the session and stands just below cycle highs at 1.4460. We pointed out that the latest pause appeared to be a flag formation - a bullish continuation signal. Immediate sights are on 1.4508 next, a Fibonacci projection level, before 1.4539.
  • Notably USD/CNH rallied to levels above 7.36 once more, close to cycle highs amid concerns over China’s economic struggles. Potentially more significantly, the onshore USD/CNY rate broke above 7.3000 - a long held and long-tested level over the past week or so.
  • Eurozone inflation readings will be a focus at the beginning of next week, and US ISM Services PMI and JOLTS data headline the docket in the US on Tuesday.