Action Insight Weekly Report 2-4-23

Dollar Won on Strong Economic Data, Might Decouple from Risk Sentiment for a While

With the help from strong economic data, Dollar struck back to end as the strongest one, after a week full of heavy weight events. Traders might start to give up on fighting the Fed on the topic of terminal interest rate and the timing of a cut, given the underlying resilience of the economy. At the same time, American and European investors appear to be optimistic that economy is going to withstand extending tightening well. FTSE even made a new record high. The development to monitor now is whether the greenback would have a near term decoupling from risk sentiment.

Elsewhere in the forex markets, Swiss Franc ended the second strongest, followed by Euro and Canadian. Sterling was the worst, thanks to selloff against European majors in particular. Australian Dollar and New Zealand Dollar came as next weakest, without much help from risk-on sentiment. Yen was mixed, facing some pressure from rebound in American and European benchmark yields.

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AUD/USD Weekly Outlook

AUD/USD edged higher to 0.7156 last week, but subsequent steep pull back indicates short term topping. Initial bias is now on the downside this week for 55 day EMA (now at 0.6806) and possibly below. But downside should be contained by 38.2% retracement of 0.6169 to 0.7156 at 0.6779 to bring rebound. On the upside, above 0.6994 minor resistance will turn bias neutral first. But overall, corrective pattern from 0.7156 should extend for a while.

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