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daily analysis 18.05.2023

President Joe Biden expressed confidence that the United States will not default on its debt, while House Speaker Kevin McCarthy stated that reaching an agreement this week is achievable. Following a meeting in Washington to discuss the debt limit, JPMorgan Chase & Co. CEO Jamie Dimon remarked that it is highly unlikely for the US government to default on its debt.

European Central Bank Vice President Luis de Guindos acknowledged that the ECB has largely completed its tightening measures, but there is still progress to be made. The euro showed minimal movement in response to this statement.

In terms of the economic calendar, it is worth noting that there is an upcoming speech by Lagard, which could hold significance for the markets. Additionally, ECB Vice President De Guindos will also be speaking.

From a technical standpoint, the currency pair has retraced to validate 1.0850 as a newfound resistance level, indicating a continuation of the downward movement, which suggests a healthy bearish trend. Similarly, the DXY (Dollar Index) reflects an inverse pattern, with increased buying pressure on the Dollar. Looking ahead, a significant target for EURUSD lies at 1.0750 on the 4-hourly chart, as well as the 100-day moving average (MA) on the Daily chart.

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The US Dollar benefited from risk aversion on Tuesday and forced GBP/USD to stay on the back foot. Although latest headlines surrounding the US debt limit negotiations suggest that there could be a deal to raise the debt ceiling by the end of this week, markets remain cautious on Wednesday.

In a recently published report, the Wall Street Journal said that House Democrats were planning to start collecting signatures for a "discharge petition to raise the debt ceiling."

Meanwhile, UK Finance Minister Jeremy Hunt said on Wednesday that they fully support the Bank of England's policy decision and noted that there is nothing that can bring inflation down automatically. These comments, however, failed to help Pound Sterling find demand.

From a technical perspective, the currency pair is exhibiting a similar pattern to other major pairs, with the Dollar gaining strength and a bearish trend taking shape. This trend is pushing the pair to establish new lows, potentially reaching the next support level around 1.2400.

Resi Level 3Resi Level 2Resi Level 1Suppo level 1Suppo level 2Suppo level 3

The US dollar demonstrated a strong rally against the Japanese yen during Wednesday's trading session, driven by sustained upward pressure. This market environment is partly influenced by the Bank of Japan's yield curve control policy, which involves injecting Japanese yen into the market to prevent interest rates from surpassing 50 basis points.

The current interest rate differential between the two central banks also contributes to the weakness of the yen. This is evident in the correlation between the yen and the US 10-year Treasury yield, which currently stands at around 3.57%. Furthermore, the yen is approaching a resistance level at 137.60.

A weaker yen has been beneficial for Japan's exports, as reflected in recent data and the country's GDP figures. Tourism has become a sector of growth for Japan following the COVID-19 lockdown measures.

From a technical standpoint, on a 1-day chart, the currency pair is approaching a significant resistance level that has held firm for the past three attempts. This could potentially be the fourth attempt, and a breakout above this level appears increasingly likely. The strength of the US dollar against other major currencies, combined with the anticipation of interest rates being maintained above market expectations, further supports this possibility.

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The price of gold (XAU/USD) experienced significant selling pressure after pulling back from $1,985.00 earlier in the European session. The precious metal is anticipated to face further weakness if it slips below the immediate support level of $1,970.00. This decline is primarily attributed to the growing optimism surrounding the approval of a US debt-ceiling raise, which is weighing heavily on the demand for gold.
The US Dollar Index (DXY) is poised to reclaim the critical resistance level of 103.00 due to expectations that the proposal to raise the US debt ceiling will receive approval by compromising the President's spending initiatives.
House of Representatives Speaker Joseph McCarthy has prepared to raise the US borrowing limit, taking into account the compromise on further budget deficits, as a failure to do so could potentially have disastrous consequences for the US economy.
Despite the anticipation of the Federal Reserve (Fed) pausing its policy-tightening measures. A Reuters poll suggests that the current interest rate of 5.00-5.25% is expected to remain unchanged by the end of 2023.
Numerous economic indicators, including declining US inflation, easing labor market conditions, reduced retail demand, and growing concerns of an economic recession, support the case for pausing interest rate hikes.
From a technical standpoint, gold is currently undergoing a significant reversal, breaking through successive levels, which aligns with our previous analysis. The patterns we observed earlier clearly indicated a bearish outlook, and the price consolidation near the previous historical high suggested an impending decline in price.
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