US Dollar Outlook: EUR/USD, USD/JPY levels to watch
17:00, 6 December 2022
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Dollar Correction But Topside Barriers Remains
USD: Unlike the reaction to the strong non-farm payrolls report, the USD has managed to hold onto its gains following the better-than-expected ISM services print. In turn, with the combination of strong NFP and now strong ISM services, this has seen the momentum in selling USD come to a halt as market participants reassess in the short run. However, the strong US data is unlikely to alter the outcome of the December meeting with the Fed set to raise rates at a slower pace of 50bps. The main focus will be on the dot plots. As it stands, the 2023 median projection is at 4.625%, in comparison to the current market pricing of 4.58%. Elsewhere, the recovery in the US dollar has been aided by the risk-off tone with downside momentum in the S&P 500 picking up as the index breaks below 4000. That being said, the move does to be thus far corrective, with the DXY yet to close above its 200DMA.
US dollar chart: daily time frame
What is your sentiment on DXY?
USD daily chart - Photo: Capital.com. Source: TradingviewEUR/USD rangebound ahead of key risk events
EUR: As mentioned above, the move in the USD appears to be corrective thus far with downside momentum exhausted. There is also a feeling that with the key risk events scheduled next week (US CPI/Fed/ECB Decision), major USD crosses may trade in rangebound fashion in the lead-up. With the single currency above the 200DMA, the topside focus remains on the 2020 low (1.0630), representing significant resistance, while support sits at 1.0365-95.
EUR/USD chart: daily time frame
EUR/USD daily chart - Photo: Capital.com. Source: TradingviewUSD/JPY Tracking Yields and Oil Lower
JPY: The currency that has the most substance for a USD bearish view is the Japanese Yen. Yields and oil are well off the highs which have underpinned the turnaround in the Yen. Alongside this, BoJ board members (Tamura) have kickstarted the conversation around reassessing the Bank of Japan’s current policy as inflation finally lands in Japan. This will be an important theme for Q1 2023, particularly with Governor Kuroda due to finish his term as BoJ Governor. At the same, with the Fed reserve slowing the pace of rate hikes, peak hawkishness from the Fed is behind us. As such, the bias for the Japanese Yen would be to fade dips. On the technical front, the upside has been capped at 137.50, which protects key resistance at 140.00-25, with support at the 200DMA thus far providing a floor.
USD/JPY chart: daily time frame
USD/JPY daily chart - Photo: Capital.com. Source: Tradingview
