2023 March Outlook for G7 Currencies
2023 March Outlook for G7 Currencies
Dollar
Fundamental perspective:
The dollar index dipped below 102 in late March, as Silicon Valley Bank’s collapse led to fears of a broader bank run contagion within the US banking system. Regulators acted quickly to merge it with another troubled bank, Signature, while the Treasury, FDIC and Fed guaranteed all deposits at the two banks to stop the bank runs from spreading. The liquidity of dollars had to be boosted by emergency measures from the Fed, leading markets to price in rate cuts this year even as the Fed has proclaimed otherwise. With the banking crisis averted, markets are more concerned with the US economy’s strength, which could influence how hawkish the Fed can afford to be.
Technical perspective (USD/CAD):
Prices are testing the support-turned-resistance zone at 1.3480 on the daily timeframe, after having broken below it. A pullback to this zone, which is in line with the 61.8% Fibonacci retracement, could provide the opportunity to play the drop to the support zone at 1.3220, which coincides with the 261.8% Fibonacci extension. Price is holding below 20 EMA and Ichimoku cloud, supporting our bearish bias.
| S1 | S2 | R1 | R2 |
| 1.3220 | – | 1.3480 |
1.3650 |
Gold
Fundamental perspective:
Gold continued its upward climb in March, briefly touching $2010 per ounce as investors flocked to the safe haven in response to the banking crisis that unfolded in the US and Europe. With the Fed nearing the end of its hiking cycle, gold is likely to remain attractive for investors looking to ride out the market volatility until the anticipated rate cuts.
Technical perspective:
Price is showing bullish order flow on the daily timeframe, with higher lows and higher highs being formed. Price is approaching a resistance zone at 1993.80, which is in line with the 23.6% Fibonacci extension. A break above the upside confirmation level could provide the bullish acceleration for a move higher to the resistance zone at 2050.20, in line with the 61.8% Fibonacci extension. Failure to hold above the trendline could see prices push lower to test the next support zone at 1922.20, in line with the 38.2% Fibonacci retracement. Price is holding above 20 EMA and Ichimoku cloud, and Stochastic RSI is in the oversold region below 20, supporting out bullish bias.
| S1 | S2 | R1 | R2 |
| 1922.20 | – | 1993.80 |
2050.20 |
Pound
Fundamental perspective:
The pound sterling rose to highs last seen in January this year, touching $1.24 against the dollar as markets weighed remarks from both the Fed and BoE. Both central banks raised rates by 25bps at their previous meetings, but the UK economy looks to be running hotter, especially as the UK’s CPI y/y in March re-accelerated from February, exceeding market forecasts. The US, on the other hand, posted weak economic data in the last week of March, while the Fed’s preferred inflation gauge, core PCE price index, fell below estimates. Continued weakness in the dollar is expected to provide support to the pound.
Technical perspective:
On the daily timeframe, price is testing a resistance zone at 1.2420, in line with the graphical high. A break above the upside confirmation level could provide the bullish acceleration for a move higher to the resistance zone at 1.2620. Failure to hold above the support zone at 1.2280, which coincides with the 23.6% Fibonacci extension, could see prices push lower to test the next support zone at 1.2180, in line with the 61.8% Fibonacci retracement. Price is holding above 20 EMA and Ichimoku cloud, supporting out bullish bias.
| S1 | S2 | R1 | R2 |
| 1.2280 | 1.2180 | 1.2420 | 1.2620 |
