The EUR/USD pair declined on Tuesday after the panic sell-off in the US dollar was put on pause.
Possible technical scenarios:
The EUR/USD pair pulled back from the 1.1001 resistance on Monday and is approaching the 1.0888 support. An upward reversal is possible within the corridor between 1.0888 and 1.1001 corridor. However, if the support at 1.0888 fails, the price may continue down to the 1.0801 level.
Fundamental drivers of volatility:
The US dollar plummeted towards the end of last week and continued to weaken on Monday, providing support for the EUR/USD pair.
Macroeconomic data published last week, including weak US employment figures and disappointing earnings reports from major tech companies, heightened concerns about a possible US economic downturn and a likely significant interest rate cut by the Federal Reserve.
However, by Tuesday, the US dollar partially recovered, leading to a pullback in the EUR/USD pair.
Intraday technical picture:
As evidenced by the 4H EUR/USD chart, the pair still has some distance to reach the support level of the range between 1.0888 and 1.1001. The future price direction will depend on whether the 1.0888 support level holds or is breached.
GBP/USD continues to decline following the Bank of England's interest rate cut last week.
Potential technical scenarios:
On the daily GBP/USD chart, the pair has consolidated below the 1.2792 level and is approaching the support level at 1.2656.
Fundamental drivers of volatility:
The pound sterling remains under pressure during the European session on Tuesday, weakened by the stabilization of the dollar after it rebounded from a fresh six-month low.
The outlook for the US dollar remains uncertain due to market concerns about a potential recession in the United States and a possible emergency interest rate cut by the Federal Reserve. These fears have weighed down the US currency on Friday and Monday.
Intraday technical analysis:
According to the 4H chart, the GBP/USD pair is holding above the support at 1.2710 marked with dotted lines. If this support holds, the price could recover to the resistance at 1.2792. A breakout and consolidation below the 1.2710 level would pave the way for the pair to reach the support at 1.2656.
The USD/JPY pair paused its decline on Tuesday as risk appetite cautiously returns following Monday's market collapse.
Possible technical scenarios:
Judging by the unfolding situation in the daily chart, USD/JPY pulled back from the resistance at 146.37. If it fails to overcome it, the price could continue its decline toward Monday’s lows and the 140.69 support.
Fundamental drivers of volatility:
The Japanese yen steadied on Tuesday following a sharp rally last week. The recent rise in the yen has been driven by heightened volatility, prompting investors to abandon previously popular carry trades, aided by the Bank of Japan’s interest rate hike last week.
Weaker-than-expected U.S. employment data on Friday coupled with disappointing earnings from major tech companies triggered a global sell-off in equities, contributing to the unwinding trend.
The yen, favored for carry trades, has strengthened significantly since mid-July when these trades began to unwind, with further gains supported by safe-haven demand on Monday.
Intraday technical picture:
As we can see on the 4H USD/JPY chart, the pullback from 146.37 has led to a decline in the pair. The nearest support is at 143.39.
The AUD/USD pair is declining as the US dollar rebounded on Tuesday.
Possible technical scenarios:
According to the daily chart, AUD/USD dropped below 0.6498, opening the potential for a decline to the support level of 0.6458, and if it is broken out, further down to 0.6362.
Fundamental drivers of volatility:
On Tuesday, the Reserve Bank of Australia (RBA) kept the interest rate at 4.35%, the highest in 12 years, as expected. The central bank emphasized the need for high rates to bring inflation back to target levels.
Since May 2022, the RBA has raised interest rates by 425 basis points. Despite inflation being 3.8% in the last quarter (above the 2-3% target range), analysts are questioning whether the current policy is stringent enough.
Experts do not anticipate a rate cut by the RBA until early next year, nor is there talk of an increase. Consequently, the Australian dollar's reaction to the central bank's decision was muted, and the pair's movement is now primarily influenced by the US dollar.
Intraday technical picture:
The 4H chart shows that AUD/USD has entered a narrow range between 0.6458 and 0.6498, suggesting potential further downward movement.
Gold prices have retreated from their historical highs as the recovery of the US dollar exerted pressure on the precious metal.
Possible technical scenarios:
On the daily chart, gold prices fell below 2430.88, potentially continuing the decline towards the support at 2352.72.
Fundamental drivers of volatility:
On Tuesday, gold prices dipped slightly as the dollar, which typically moves inversely to the precious metal, saw a slight uptick.
However, statements from Fed officials, reinforcing expectations of significant interest rate cuts in the US this year, softened this pressure. They downplayed weak July employment data as an indicator of recession but indicated rate cuts would be necessary to avoid such a scenario.
Traders now anticipate the Fed will cut rates by 110 basis points this year, with a 50 basis point reduction in September seen as more than 70% likely.
Lower rates pressure the dollar while enhancing the appeal of gold bullion.
Intraday technical picture:
Based on the unfolding situation on the 4H chart, gold retreated from the resistance at 2430.88 and found support at the level of 2388.49 marked with dotted lines. From here, either a recovery or a breakout with consolidation below is plausible. In the latter case, the decline may continue to 2352.72.
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