US Dollar Retreats from Highs to Test 95.7 Level

After the U.S. released its inflation and retail sales data last week, the US dollar fell from an 18-month high, hitting the 20-week moving average line at 94.68 before stabilizing and rising. The dollar rose from significant lows against other major currencies. The U.S. housing data and continuing jobless claims are set for release this week. The U.S. real estate market has been very hot since the pandemic outbreak. 

It seems unlikely that the problem of surging housing prices will ease in 2022 as the employment situation keeps improving, further pushing up housing prices. These positive factors are likely to support the dollar. Technically, after the dollar recovers past the 95 level, it will test the 10-day moving average line at 95.70. If it surpasses the 96 level, we expect it to move to 96.40.

In addition, this week, the markets will attach great importance to the CPI data from the Eurozone, the United Kingdom, and Canada, which may guide the monetary policies of the affected central banks.

Effect of the Employment data on the Sterling

Sterling has held on to a solid start to the year on speculation that the Bank of England will raise interest rates again in February with a 78% chance. In addition, investors are paying attention to the UK employment data to be released tomorrow. During the raging pandemic, the UK labour market’s long-term supply and demand imbalance was exposed, including supply chain bottlenecks caused by labour shortages. These bottlenecks indirectly affected the delivery of materials creating significant supply problems that led to soaring inflation. 

If tomorrow’s  UK employment data is far worse than last month’s, it may increase the downward pressure on the pound. Therefore, investors should initially pay attention to the technical support levels at 1.3626 and 1.3588 before focusing on the UK CPl and retail sales data.  If the data exceeds expectations or boosts the pound, the next target will be 1.3830, the high from three months ago.

Canada’s economic recovery has been strong, with the market pricing in an 80% chance of the central bank raising interest rates. The market expectations are in stark contrast to the Bank of Canada’s guidance that April could be the earliest possible time to raise rates. As such, the upcoming inflation and retail sales data could be crucial. 

In addition, investors also need to observe the OPEC and IEA monthly crude oil market reports scheduled for release this week. If the oil groups maintain an optimistic attitude towards crude oil supply or issue guidance that oil prices will rise again, they would indirectly support the Canadian dollar. Therefore,  the US dollar/  Canadian dollar pair could test the 1.2287 low from three months ago, while the technically critical resistance level you should pay attention to is 1.2693.

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