On the daily chart below, we can see that the price has been trading in a falling channel for a quarter now. The USD lost ground on the back of falling inflation and rate cuts being priced for this year.
Recently things changed as the blockbuster NFP report yet again showed an extremely tight labour market and the ISM Services PMI jump back into expansion triggered a repricing of rates expectations. We can also see that the channel is diverging with the MACD.
Generally, this loss of momentum triggers a pullback to the nearest support/resistance or trendline before another leg lower/higher.
In fact, the price pulled back to the top of the channel and if we see it breaking up, then a much bigger correction may kick in with the price possibly rallying all the way back up to 0.96 and the 50% Fibonacci retracement level.
On the 4 hour chart below, we can see that after reaching the resistance, the price pulled back to the 50/61.8% Fibonacci retracement area. The price bounced there as the US CPI report yesterday showed that the disinflationary trend is slowing and the M/M inflation rate is still too high.
In fact, the market repriced future interest rates expectations with the terminal rate moving up a bit and rate cuts being priced out. The range now is clear: get above the resistance at 0.9287 and the breakout is confirmed with further upside expected, get below the support at 0.9150 and the sellers will start to target the low at 0.9050.
On the 1 hour chart below, we can see that the moving averages are now pointing north and the price is right at the upper bound of the channel. Today we have the US Retail Sales report, which is expected to be positive. A beat to the expectations should give us the breakout higher, while a miss should give us another pullback to the support zone at 0.9150.
