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The dollar will continue to strengthen

May 11, 2022

GBP/USD: The British pound edged lower on Tuesday, heading back towards its lowest level in nearly two years on signs that a weakening economy will force the Bank of England to slow its interest-rate hiking cycle. On Thursday, the BoE raised its benchmark interest rate to 1.0% but said it saw the economy shrinking in 2023 and a near 1% fall in the gross domestic product in the final quarter of 2022. Markets are currently pricing in a further 100 basis points of tightening from the BoE this year, taking the benchmark rate to just above 2.0%. Despite this, at the current stage, the pound’s dynamic is completely dependent on the dollar, which, apparently, will continue to grow. Immediate support is seen at 1.2300. A breakout below could take the pair towards 1.2200.

SELL STOP 1.2300/TP 1.2200/SL 1.2330

 

USD/CAD: The Canadian dollar weakened to its lowest level in 18 months against the U.S. dollar on Tuesday as oil prices fell and recent volatility in global equity markets continued. Canada is a major producer of commodities, including oil, so the loonie tends to be sensitive to the outlook for the global economy. U.S. crude prices settled 3% lower at $100 a barrel as the market balanced demand concerns with impending European Union sanctions on Russian oil. Immediate resistance can be seen at 1.3050. A breakout to the upside can trigger growth towards 1.3120.

BUY STOP 1.3050/TP 1.3120/SL 1.3030

 

USD/JPY: The dollar strengthened against the yen on Tuesday ahead of a key reading on inflation that could provide clues on the Federal Reserve’s monetary policy path. Investors will closely eye the April consumer price index reading on Wednesday for any signs of cooling inflation, with expectations calling for an 8.1% annual increase compared to the 8.5% rise recorded in March. The greenback has climbed nearly 9% this year to reach 20-year highs as investors have gravitated towards the safe haven on concerns about the Fed’s ability to tamp down inflation without causing a recession. The dollar is also supported by concerns about the prospects for global economic growth against the backdrop of a pandemic in China. Strong resistance can be seen at 131.00. A breakout to the upside can trigger growth towards 132.50.

BUY STOP 131.00/TP 132.50/SL 130.50