2023 February Outlook for G7 Currencies
2023 February Outlook for G7 Currencies
Dollar
Fundamental perspective:
The dollar retraced to the year-high of 105, after a strong rally in February on the back of robust employment data and persistent inflation figures. Non-farm employment rose by close to triple market forecasts, while unemployment dropped to the lowest in 50 years. Inflation also jumped compared to the previous month, instead of holding steady as markets expected. Markets are therefore expecting the Fed to remain hawkish in the near-term, with most traders pricing in a higher peak terminal rate than the Fed’s projected rate last December. This outcome is surprising, given how January markets were still pricing in rate cuts later in the year. The Fed will be releasing another forecast this month, with most traders still expecting a 25bps rate hike at the same meeting.
Technical perspective:
On the daily timeframe, prices are approaching a key resistance zone at 105.80, in line with the 38.2% Fibonacci retracement. A break above this zone could provide the bullish acceleration to the next resistance zone at 108.20, which coincides with the 61.8% Fibonacci retracement. A failure to break above this zone could indicate that the recent rally is merely a pullback in a longer move downwards, which presents an opportunity to play the drop to the support zone at 103.00. Prices have crossed above 45 EMA, supporting our bullish bias.
| S1 | S2 | R1 | R2 |
| 105.80 | 103.00 | 108.20 |
– |
Gold
Fundamental perspective:
Gold slumped from last month’s high to touch $1807 per ounce, as fears of a longer-than-expected tightening cycle from the Fed weighed on its attractiveness. The Fed has continued signalling its commitment to bringing inflation back down to 2%, which remains some time away after the most recent inflation data showed the largest jump since June last year. The Fed’s hawkishness will continue to exert short-term selling pressure on gold, as the opportunity cost of holding non-yielding bullion increases.
Technical perspective
Prices are testing a key resistance-turned-support zone at 1831.20 on the daily timeframe, in line with the 38.2% Fibonacci retracement. A throwback to this zone could provide the bearish acceleration to the next support zone at 1777.50, in line with the 50% Fibonacci retracement. Prices are holding below the 20 EMA as well, supporting our bearish bias.
| S1 | S2 | R1 | R2 |
| 1831.20 | 1777.50 | 1861.50 | – |
New Zealand
Fundamental perspective:
The Kiwi dollar fell to the lowest level since the beginning of the year, reaching $0.61 on weak economic data. Retail sales fell, while unemployment rose and employment grew less than expected. Inflation also came in below the RBNZ’s forecasts, and Governor Orr rejected 75bps rate hikes in future, barring major surprises. This month will also see the release of q/q GDP numbers, which would paint a better picture of the New Zealand economy’s health.
Technical perspective:
On the daily timeframe, prices have fallen below a key resistance zone at 0.6300, in line with the 23.6% Fibonacci retracement. A pullback to this zone could provide the opportunity to play the drop to the support zone at 0.5880, which coincides with the 61.8% Fibonacci retracement. Prices are holding below the Ichimoku cloud as well as the 20 EMA, supporting our bearish bias.
| S1 | S2 | R1 | R2 |
| 0.5880 | – | 0.6300 |
0.6500 |
