WIKIFX REPORT: Forex Market Outlook

The forex market is focused on two key factors right now: inflation and Covid-19. These factors are expected to be under the spotlight heading into 2022, driving central banks‘ monetary policy decisions. The Dollar index held steady, hovering near its 106.50 level as investors reassess Fed’s moves going forward.

Several Fed policymakers, including the typically highly dovish Chicago Fed president Charles Evans, expressed a strong commitment to reducing inflation down to the central banks objective of 2%.

For the meantime, upside surprises in the economic data also buoyed demand for the greenback, as the ISM non-manufacturing purchasing managers index outperformed forecasts by a wide margin, assuaging concerns about an impending recession and bolstering the case for a more Fed interest rate hike going forward.

Aussie pared recent gains after RBA raised interest rates by 50 basis points to 1.85% for the fourth consecutive month as widely anticipated but scaled back on its hawkish stance amid expectations of an economic downturn. RBA Governor Philip Lowe added that although the process of normalizing monetary conditions is not on a set course, the board “expects to take more steps in the process over the months ahead.” Consumer price inflation is also projected to peak at around 7.75% in 2022.

Looking ahead, notable publications this week include the BOE Monetary policy meeting with markets anticipating a 50-basis points hike, RBA monetary policy statement as well as Canadas and US jobs data.

Trade ideas that played out on Tuesday: 2 August 2022

USDCAD H4: Bearish outlook has seen, reversal below 1.2890

On the H4 time frame, prices are approaching the resistance zone at 1.2890, in line with the Fibonacci confluence levels where we could see further downside below this zone to the intermediate support target at 1.2780 which coincides with the graphical support. A break below the 1.2780 intermediate support target could provide the bearish acceleration to the support area at 1.2680. Prices are holding below the Ichimoku cloud indicator as well, supporting the bearish bias.

Coloured candles represent our projection

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USDCAD M30: Bearish outlook seen, further downside below 1.2850

On the M30 time frame, a pullback to the resistance zone at 1.2850, in line with the graphical resistance area and 78.6% Fibonacci extension presents an opportunity to play the drop. A break below our downside confirmation level at 1.2835 could provide the bearish acceleration to our support zone at 1.2790. This support zone coincides with the 78.6% Fibonacci retracement. Prices are holding below the Ichimoku cloud indicator as well, supporting the bearish bias.

Coloured candles represent our projection

GBPJPY D1: Bearish outlook seen, further downside below 164.50

On the Daily time frame, prices are approaching the resistance zone at 164.50, in line with the descending channels resistance and Fibonacci confluence levels where we could see a reversal below this area to the support target at 156.80. Failure to hold below the resistance zone at 164.50 could see a push up to the resistance target at 167.90. Stochastic is facing bearish pressure from its resistance as well where we could see limited upside before it reaches resistance at 96.70.

Coloured candles represent our projection

USDJPY H1: Bullish outlook seen, further upside above 132.60

On the H1 time frame, prices are holding above an ascending channel and a throwback to the support zone at 132.60, in line with the 50% Fibonacci retracement and ascending channels support presents an opportunity to play the bounce to the next resistance target at 135.50. A break above the upside confirmation at 134.50 would provide the bullish acceleration to the resistance target at 135.50. Prices are holding above the 50 EMA as well, supporting the bullish bias.

Coloured candles represent our projection