The U.S. Dollar Correction is Underway

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The U.S. Dollar softened a touch following the 75BPS hike by the Fed and yesterdays U.S. GDP report confirmed that the U.S. economy has now entered recession with the economy having shrunk by 0.9% annualised QoQ in the second quarter and this is now the second quarterly contraction.

This appears to have been pretty well priced in, however the JPY rallied valiantly, and the U.S. Dollar is showing signs of weakness across several currency pairs and of note are the following:

We have barely seen movement on the EUR/USD chart which remains stubbornly thwarted by previous lows at 1.0350ish.

However, the market is not backing away from this tough band of resistance either and for now remains in consolidation mode.

Elsewhere the moves are more interesting and in particular on the USD/JPY chart.

We recently highlighted the divergence of the weekly RSI, and this market is now selling off in earnest.

So, let’s take a closer look to see how far this could retrace.

The initial retracement lies at 130.69 (23.6% retracement of the move from the 2021 low, but our preferred short-term target is the 125.85/30 2015 peak and 38.2% retracement.

What else is of interest?

Let me see – we have USD/ZAR which has sold off to its 2021 16.36 peak and is staging a recovery off there.

We are not yet convinced that is it on the downside and rallies will need to regain 16.97 to reassure us that upside pressure has resumed. But for the very short term we will look for some stabilisation within these 2 levels.

GBP/USD is through its near-term downtrend and smacking into its 55-day ma at 1.2238. Above here lies the 1.2406 mid-June high and the 1.2660 May high.

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