On Friday, the dollar is staging a fast recovery from the FOMC slump. The broad USD strength forced Sterling and Euro downside as the week draws to an end. Meanwhile, the happens despite the loss of momentum on the treasury yield.
On Thursday, the FOMC came all dovish and the dollar slumped as a result. The dollar index plummeted slightly below the 90.5 psychological level. However, a recovery back to 90.5 happened and was sustained throughout Friday Asian session. Meanwhile, early in the London market, the greenback resumed the recovery to 91 and is about to end the week bullish for the first time in a month. The recovery was very much expected as the dollar was perceived to have reached an oversold region. While the long-term sentiment might favor the bears, the short-term outlook into next week looks bullish.
The Sterling was the biggest hit on Friday as the post-Brexit uncertainty continues to pose some threat. GBPUSD dropped over 120 pips during the London and New York session as it faltered below 1.385. EURUSD dropped over 80 pips as it breached 1.2050. USDJPY gained marginally due to the Yen’s slight recovery from this week’s losses while USDCAD went sideways as a result of a strong CAD. High-beta AUDUSD and NZDUSD were dragged into the week’s red zone after the former rejected 0.78 and the latter missed 0.73.
Meanwhile, in the commodities market, Gold goes sideways as a result of a quiet yield. Traders might look forward to a more short-term decline toward 1755-1735 before the bullish trend resumes. WTI slumped at $65.4 to trade below $64 and hit below $63 before the market closes for the week.
DXY technical analysis
In our Thursday’s FOMC report, we reckoned that the dollar might stage a rebound despite the bearish pull of the Fed’s dovish outlook. A bearish impulse wave that has endured throughout April completed an ending diagonal 5th wave as the chart below shows.
The chart above shows the DXY breaking out of the ending diagonal 5th. Further rally is expected to complete at least a 3-wave corrective rally to 91.2 92.27 which are important Fib retracement levels.
EURUSD to plunge further?
EURUSD displays the inverse of the dollar index. A bullish impulse wave pattern completed with an ending diagonal structure as the chart above shows. Price returned below the 1.2115-1.21 critical zone after a false break above it. The breakdown below the diagonal 5th also suggests that a 3-wave corrective decline should follow next week toward the 1.192-1.187 Fibonacci target zone.
Sterling off to 1.38 on a dollar-forced slump
The Sterling has been bearish across the board in April and that will most likely continue in May as post-Brexit now weighs in. A strong dollar is expected to force this FX pair below 1.38 down to 1.37 in the short term. The GBPUSD chart above shows the Cable in a complex bearish correction. After a forced break above 1.3950, it has gone over 120 pips below and that’s expected to increase next week.
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