2023 May Outlook for G7 Currencies
2023 May Outlook for G7 Currencies
Dollar
Fundamental perspective:
The dollar index rallied in May, to above 104. While debt ceiling negotiations dominated narrative for dollar strength in May, persistent inflation data contributed to it too. Inflation expectations hit a 12-year high. The Fed emphasised the need to achieve 2% inflation, but tightening credit conditions could subdue further rates hikes. FOMC members also raised the possibility of a hawkish pause in June. Unemployment rate came in at record low, while JOLTS job openings exceeded expectations. With the debt ceiling crisis nearly out of the way, markets are now weighing US economic performance against the rest of the world, which could see the US dollar continue its climb.
Technical perspective (EUR/USD):
Price is hovering above a key support zone at 1.0520 on the daily timeframe. A throwback to this zone, which coincides with the 61.8% Fibonacci retracement, could provide an opportunity to play the bounce to the resistance zone at 1.1050, which is in line with the 61.8% Fibonacci extension level. Stochastic RSI is in the oversold region below 20, supporting our bullish bias.
S1 | S2 | R1 | R2 |
1.0520 | 1.0320 | 1.1050 |
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GBP
Fundamental perspective:
The pound sterling fluctuated between $1.26 and $1.23 against the dollar, closing at $1.24. Economic headwinds persist in the UK, with GDP contracting m/m and core inflation reaching its highest level in over 30 years. With the UK having the highest inflation rate among the major economies, markets have priced in four more straight 25bps rate hikes as the BoE works to control inflation. Prime Minister Sunak and Chancellor Hunt have both intervened in supermarket price increases. Policymakers of BoE remain tight-lipped regarding the future path of interest rates, which would contribute to the pound’s volatility in the short term.
Technical perspective:
On daily timeframe, price has bounced off strongly from the support zone at 1.2300. A break above the upside confirmation level at 1.2450, which is in line with the 38.2% Fibonacci retracement level, could provide the bullish acceleration towards the next resistance at 1.2620, which coincides with the 38.2% Fibonacci extension level. Price is hovering above ichimoku cloud, supporting our bullish bias.
S1 | S2 | R1 | R2 |
1.2300 | 1.2180 | 1.2620 |
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Brent Crude
Fundamental perspective:
Brent crude plummeted to a two-month low of $71 a barrel as China’s post-Covid-zero recovery weakened further, lowering prospects for oil consumption. The Fed’s ongoing tightening exacerbated concerns about future demand. OPEC+ will meet this month to discuss output levels, which might highlight Russia’s continued oil exports to Asia despite its assertion that it has implemented the production cuts promised to OPEC+ members.
Technical perspective:
Price is testing a key support zone at 72.00 on the daily timeframe, which coincides with the 38.2% Fibonacci extension. Bullish pressure from said support zone could see prices push higher to the resistance zone at 77.80, which is in line with the 38.2% Fibonacci retracement. Stochastic RSI is in the oversold region below 20, supporting our bullish bias.
S1 | S2 | R1 | R2 |
72.0 | 69.0 | 77.8 | – |