Only US policymakers can stop the dollar’s growth

(Alexander Kuptsikevich – FxPro Financial Services Limited)

The differences between the actions of monetary authorities in various developed countries are becoming increasingly apparent. Until we see real work by the governments and central banks of the USA, Japan, or the Eurozone to change the trend, it is hardly prudent to bet on a peak in the USD.

In our view, governments’ ability to service their debts is an unspoken and indirect reason for this divergence. In the first instance, this depends on the level of the debt burden, and a more comprehensive set of measures also includes international investor confidence and the ability to raise money from the markets at an acceptable interest rate for the government.

From that point of view, the procrastination by the ECB, which is not expected to raise its rate until later Thursday, is understandable. Probably by as much as 50 points at once. For the ECB, it may look like a decisive move, but it is desperately lagging behind market conditions and the actions of its colleagues. Much of this has to do with questions about whether debt-ridden Italy and Greece can hold their own.

In Japan today, the central bank left Thursday’s rate unchanged at -0.1% and promised to increase QE if necessary. The debt-ridden Rising Sun Country cannot raise rates to protect against rising import prices., which has direct and obvious consequences for the currency. Since the start of 2021, the yen has lost 35% against the Dollar, about double the loss of the euro.

To investors and traders, the current euro and yen exchange rates may seem low after updating 20-year lows, but that is a dangerous approach. Rebalancing global monetary or currency policy is necessary to reverse the Dollar’s rising trend.

The ECB and the Bank of Japan allow a market devaluation of their currencies, ostentatiously delaying their policy tightening. Since they are significant reserve currencies, devaluation is proceeding smoothly despite economic problems and gloomy prospects due to dependence on energy imports.

Japan’s authorities appear to be only concerned about the pace of the yen’s decline, not about its falling. The euro region’s monetary and financial authorities have made no discernible comments to defend the euro. Only the US authorities can stop the Dollar’s rise in such circumstances.

Right now, the appreciation against peers is working to lower inflation and cool the economy, as is the policy of the Fed. Furthermore, the current situation is working on the Dollar’s credibility, which has been shaken in 2020.

In our view, in the coming months, the Dollar’s rise will only be interrupted by occasional technical pullbacks. Only the US authorities can stop this trend. The Treasury could suddenly become alarmed by the appreciation of the Dollar. The Fed could also quickly reduce the rate hikes or talk about easing plans once it is convinced that inflation has turned around. But so far, we are not at that point.

GBPUSD Forecast: Sellers back in play as technicals turn bearish

(Eren Sengezer – FXStreet)

– GBP/USD has declined toward 1.1900 in early European session.

– The risk-averse market environment helps the dollar gather strength.

– There is a bearish tilt apparent in the near-term technical outlook.

GBP/USD has extended its slide toward 1.1900 early Thursday after having closed below 1.2000 on Wednesday. The technical picture shows that sellers are looking to retain control of the pair’s action.

The negative shift in risk sentiment seems to be helping the greenback find demand in the second half of the week. The US Dollar Index, which snapped a three-day losing streak on Wednesday, was last seen posting modest daily gains above 107.20. Meanwhile, US stock index futures are down between 0.35% and 0.4%, confirming the souring market mood.

Investors will keep a close eye on the European Central Bank’s (ECB) policy announcements. In case the ECB fails to help the euro find demand by hiking key rates by 25 basis points instead of 50, the dollar is likely to continue to gather strength. In that scenario, however, the British pound could also capture some of the outflows out of the euro and GBP/USD’s downside could remain limited. Following the inflation and employment data this week, markets are nearly fully pricing in a 50 bps Bank of England rate hike in August.

On the other hand, a hawkish ECB surprise could trigger another dollar selloff and allow GBP/USD to gain traction.

Later in the day, the US economic docket will feature the weekly Initial Jobless Claims and the Federal Reserve Bank of Philadelphia’s Manufacturing Survey. Nevertheless, the dollar’s market valuation is likely to be impacted by the ECB’s policy decisions and the overall sentiment. In case Wall Street’s main indexes suffer heavy losses after the opening bell, the dollar could hold its ground and vice versa.

GBPUSD Technical Analysis

GBP/USD is trading within a touching distance of the key 1.1920 (Fibonacci 23.6% retracement of the latest downtrend, 50-period SMA) support. With a four-hour close below that level, the pair could face interim support at 1.1900 (psychological level) before targeting 1.1800.

On the upside, 1.1975 (20-period and 50-period SMAs on the four-hour chart) aligns as initial resistance before 1.2000 (psychological level, Fibonacci 38.2% retracement) and 1.2060 (Fibonacci 50% retracement).

Meanwhile, the Relative Strength Index (RSI) indicator on the four-hour chart now stays below 50, confirming the bearish tilt.

Read Forex Technical Analysis: GBPUSD, EURUSD and ECB, USDJYP

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