USD Continues To Remain Weak On Improved Sentiment

Mar 12 21, 10:51 GMT

The USD continued its retreat against a number of its counterparts yesterday as the market sentiment improved and the greenback may have experienced some safe haven outflows. Both employment data released yesterday tended to outperform market expectations and support a more risk on approach, while at the same time eased worries for the US employment market further. On the fundamentals, the US President signed the fiscal stimulus bill into law, while at the same time directed states to make all adults eligible for vaccination by May 1 underscoring the fast pace of vaccination in the US. Should the risk on sentiment of the market continue we may see the USD suffering further safe haven outflows and vice versa.

USD/JPY maintained a sideways motion in the past days between the 109.25 (R1) resistance line and the 107.90 (S1) support line. We tend to maintain a bullish outlook for the pair as long as it remains above the upward trendline which steepened its slope since the 23rd of February. It should be noted though that the validity of the prementioned upward trendline is being put to the test, as the price actions engages it. Nevertheless, for our bullish outlook to change in favour of a sideways bias initially we would require a clear breaking of the prementioned upward trendline. Should the pair find extensive fresh buying orders along its path we may see it breaking the 109.25 (R1) resistance line and aim for the 110.30 (R2) level. Should a selling interest be displayed by the market, we may see USD/JPY breaking the prementioned upward trendline, the 107.90 (S1) support line and aim for the 106.60 (S2) level.

Pound continues to climb

The pound gained against the USD and JPY while stabilised against the EUR and CHF yesterday, yet the climate seems to remain positive. The swift vaccination program in the UK continues to grab investor’s attention and provides a positive outlook for the UK economy and hopes for a quicker return to some sort of normality. The progress marked in the UK with Covid 19 vaccinations also reduced market expectations for the BoE lowering its interest rates below zero also supporting the sterling in a more indirect way. UK’s Finance minister Sunak defended his budget plans before the House of Commons yesterday and expressed his worries for rising borrowing costs, while at the same time stated that expectations for inflation remain well anchored.

GBP/USD continued to rise yesterday, correcting lower after testing the 1.3990 (R1) resistance line in the late Asian session today. We maintain a bullish outlook for the pair as long as it remains above the upward trendline incepted since the 9th of March, yet it should be noted that today’s correction lower is threatening to break the prementioned upward trendline. Also bear in mind that the (R1) level was able to successfully reverse the pair’s upward movement a number of times since the beginning of March. Should the bears prevail we may see cable breaking the upward trendline and aim if not break the 1.3845 (S1) support line on its journey southwards. Should the bulls maintain control over the pair’s direction, we may see the pair breaking the 1.3990 (R1) resistance line and aim for the 1.4145 (R2) resistance level.

Other economic highlights today and early Tuesday:

Today in the European session we note Germany’s final HICP rate for February, UK’s GDP and manufacturing output growth rates for January and Eurozone’s industrial production for January. In the American session we get from the US the PPI rates for February, the preliminary University of Michigan consumer sentiment for March, and the weekly Baker Hughes oil rig count ’s, while we also note Canada’s employment data for February. During Monday’s Asian session we get Japan’s machinery orders growth rate for January while AUD traders may be keeping an eye out for China’s industrial output growth rate for February, which is of special interest for Australian exporters of raw materials. On the monetary side, please note that RBA Governor Philip Lowe is scheduled to speak during Monday’s Asian session.

USD/JPY H4 Chart