2023 July Outlook for G7 Currencies
2023 July Outlook for G7 Currencies
Dollar
Fundamental perspective:
July witnessed the collapse of the dollar from its high of 103.5 to the low of 99.5 as non-farm payroll and CPI, which was reported at 3% growth, moderated more than consensus had expected. In addition, poor business conditions revealed by flash manufacturing and services PMIs weighed on the dollar. Despite the Fed raising rates by 25bps, bringing the Federal Funds Rate to 5.25%-5.50%, dollar strength remained muted. However, positive advance GDP q/q and above-expectation unemployment claims figures bolstered the dollar against some of its losses in July. Despite the Fed indicating the need for two more rate hikes in its June’s dot plot, the markets are currently pricing in an almost 80% chance of a rate pause during September’s FOMC meeting.
Technical perspective (EUR/USD):
On the daily timeframe, price has bullish order flow, forming higher lows and higher highs. A throwback to the support zone at 1.0880, which is in line with the 61.8% Fibonacci retracement, could provide the bullish acceleration towards the resistance zone at 1.1250, which coincides with the 78.6% Fibonacci retracement. Price is hovering above ichimoku cloud, supporting our bullish bias.
| S1 | S2 | R1 | R2 |
| 1.0880 | 1.0650 | 1.1250 |
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Pound Sterling
Fundamental perspective:
The Pound Sterling had a tumultuous month in July, losing almost all of its gains against the dollar near mid-month, ending at $1.28 against the dollar as the y/y CPI was lower than forecasted. With inflation significantly higher than accepted levels, BOE Governor Andrew Bailey reiterated the BOE’s stance on bringing down the inflation rate to optimal levels and would do so by elevating interest rates where necessary. Expectations for Bank Rates are currently between 6.25% to 6.5%, undergirding negative market sentiments for further rate hikes.
Technical perspective:
On the daily timeframe, price has recently rejected off from a resistance zone and is currently retracing towards a key support zone at 1.2700, which is in line with the 78.6% Fibonacci retracement. A throwback to this zone can provide the push required for price to head back to its high at 1.3120, which is in line with the 141.4% Fibonacci extension. Price is hovering above ichimoku cloud, supporting our bullish bias.
| S1 | S2 | R1 | R2 |
| 1.2700 | 1.2500 | 1.3120 |
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Loonie
Fundamental perspective:
The Loonie neared highs of 1.34 against the dollar for the month of July right before optimistic employment news pushed the pair down, strengthening the Canadian currency to its highest levels in the month. The Loonie was further elevated by news on the BOC rate statement and the overnight rate, which met market’s expectations of 5%. BOC’s Macklem reminded the markets of the premature expectations of a rate cut, with his speech followed by a higher-than-expected CPI to eventually strengthen the Loonie again.
Technical perspective:
Price is currently adhering to a descending trendline on the daily timeframe. A pullback to the resistance zone at 1.3450, which coincides with the 61.8% Fibonacci retracement, could provide the bearish acceleration towards the next key support zone at 1.2950, which is in line with the 78.6% Fibonacci extension. Price is hovering below ichimoku cloud, supporting our bearish bias.
| S1 | S2 | R1 | R2 |
| 1.2950 | – | 1.3450 | 1.3650 |
