Thu, Jan 27, 2022 @ 14:43 GMT
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Foreign Exchange Market Commentary

EUR/USD

The American dollar traded firmer against all of its major rivals, resuming its post-US election correlation with local equities. Following Trump’s victory, the greenback rallied alongside with equities, in the so-called "Trump trade," based on hopes the upcoming administration would work to boost growth and inflation. The impulse cooled down following Trump’s first press conference since last year, as he failed to provide details on any political decision. Still, ever since he took the office last Friday, the announcement of huge infrastructure investment had revived the Trump trade, with the greenback benefiting from it just this Thursday. Yields rallied and the Dow surpassed 20,100, pushing the EUR/USD pair below the 1.0700 level.

In the data front, the German GFK Consumer Confidence Survey index rose more-than-expected to 10.2 in February from 9.9 in January, indicating that consumers believe local growth will continue next month. In the US, data came mixed, as weekly unemployment claims rose to 259K in the week ending January 21, above the upwardly revised figure of the previous week of 237K, still at multi-decade lows. Also, New Home sales fell to a 10-month low in December, reaching a seasonally-adjusted annual rate of 536,000, below the 588K expected. The positive note came from the preliminary Markit Services PMI for January, up to 55.1 from 53.9 in December, the fastest expansion rate since November 2015.

As for the EUR/USD technical picture, the pair settled around 1.0680 after briefly falling below a daily ascendant trend line coming from the multi-year low posted early January at 1.0340, and trades a few pips above it, maintaining the negative tone in its 4 hours chart, as the price is well below a now modestly bearish 20 SMA, whilst technical indicators entered bearish territory, now losing bearish strength. Supporting some further declines is the fact that the pair broke its latest range towards the downside, although a break below 1.0657, the daily low, is required to confirm such move for this Friday.

Support levels: 1.0655 1.0610 1.0565

Resistance levels: 1.0710 1.0740 1.0770

USD/JPY

The USD/JPY pair closed the day at 113.34 after trading as high as 114.85 this Thursday, a fresh weekly high, trading positively for the first time this week. The Japanese yen fell on continued demand for high-yielding assets, with US stocks extending their record gains and US yields advancing earlier on the day. The yield on benchmark 10-year Treasury note surged up to 2.55%, but eased in the American afternoon, now down to 2.51%, helping the JPY to recover some ground. Japan will release its Tokyo and National CPI figures during the upcoming Asian session, with the YoY readings expected to remain within deflationary territory below 0.0%. BOJ’s efforts to end decades of deflation have so far been vain, and the new monetary policy, focused on keeping rates differentials near zero, has did as little as money printing. Inflation may raise for the wrong reasons, named higher energy prices rather than more consumption, which at the end, will force the BOJ to cut rate further into negative territory. At this point, the risk of another run towards 110.00 is still high, as the pair remains below some strong resistances, the 23.6% retracement of the latest daily advance at 114.50, and a bearish 100 SMA in the 4 hours chart, a few pips above it. In the same chart, technical indicators have turned lower, but hold well above their mid-lines, indicating that some further slides are required to confirm a steeper decline.

Support levels: 114.00 113.60 113.20

Resistance levels: 114.50 114.90 115.35

GBP/USD

The GBP/USD pair settled around 1.2590, pulling back from a fresh monthly high of 1.2673 and despite encouraging UK data. According to the official release, the first estimate of the UK’s Q4 GDP came in better-than-expected, as the economy is estimated to have grown by 0.6% in the three months to December, above the 0.5% expected whilst the year-on-year figure came in at 2.2% against an expected 2.1%. Mortgage approvals rose beyond expected in December, up to 43.228K against a previously revised 41.003K, whilst borrowing rose in December 2016, but there are signs that demand may soften in 2017 as consumers and businesses anticipate higher interest rates, according to the official release. Also, Theresa May published the Brexit bill, in preparation for MPs’ vote, which generate anger among policy makers, as the bill is just eight line long, designed to prevent any Parliamentary attempt to amend it, and gives the Houses just five days to debate it. The intraday decline looks just corrective as in the 4 hours chart, the decline stalled around a sharply bullish 20 SMA, whilst technical indicators have resumed their advances within positive territory, although stand now below previous daily highs. The mentioned 20 SMA stands at 1.2550, the level to break to see the pair falling further this Friday.

Support levels: 1.2550 1.2510 1.2470

Resistance levels: 1.2595 1.2635 1.2680

GOLD

Gold slide extended to fresh 2-week lows, with spot settling at $1,188.80 a troy ounce. The bright metal attempted to recover some ground early Asia, but turned south on dollar’s broad recovery mid London session, falling as low as 1,184.38 before being able to bounce some. Nevertheless, the commodity seems to have found and interim top, and technical readings in the daily chart favor some further declines for this Friday, as not only the price was rejected by a bearish 100 DMA, but also broke below the 20 SMA for the first time since mid December. In the same chart, technical indicators present sharp bearish slopes and are currently crossing their mid-lines into negative territory, supporting a downward extension. In the shorter term, and according to the 4 hours chart, the risk is also towards the downside, as technical indicators are currently consolidating near oversold readings, whilst the 20 SMA has turned sharply lower, now converging with a Fibonacci resistance at 1,204.50.

Support levels: 1,184.40 1,173.15 1,162.10

Resistance levels: 1,196.00 1,204.50 1,214.60

WTI CRUDE

Crude oil prices advanced this Thursday, with West Texas Intermediate crude futures settling at $53.80 a barrel, holding however, within familiar ranges. Oilfield services company Baker Hughes published its quarterly earnings which showed its losses continued, despite an uptick in exploration and production activity, blaming it on the 32% decline in the average rig count through 2016. The news contained the advance, triggered by the sharp rally in US stocks and general market’s optimism. Trading at fresh weekly highs, the daily chart favors additional advances, as the price recovered from a horizontal 20 DMA, whilst technical indicators head north within positive territory after spending most of the last two weeks in neutral territory. Shorter term, however, the commodity maintains its neutral stance, given that in the 4 hours chart, the moving averages remain all together and directionless in a tight range, in the 53.00 region, whilst technical indicators have turned lower within positive territory.

Support levels: 53.60 53.00 52.55

Resistance levels: 54.30 55.00 55.60

DJIA

Following a positive start, US stocks closed mixed, with the DJIA settling at fresh record highs of 20,100.91, up by 32 points or 0.16%, while the Nasdaq Composite and the S&P closed 1 point lower each, at 5,655.18 and 2,296.68 respectively. Du Pont was the best performer within the DAX, up by 1.72% followed by Boeing that added 1.95% and Goldman Sachs, up by 0.98%. Verizon topped losers’ list, down by 1.31%. The DJIA retains the positive momentum seen on previous updates, advancing further beyond its 20 DMA, whilst technical indicators have extended their advances within positive territory. In the shorter term, the index is also biased higher, as the 20 SMA crossed well above the 100 and 200 SMAs, whilst technical indicators hold within overbought territory, with the RSI indicator resuming its advance around 76, as the index holds around its intraday high of 20,123 after the close.

Support levels: 20,037 19,949 19,878

Resistance levels: 20,090 20,150 20,200

FTSE 100

London equities closed lower, with the Footsie down by 3 points, to 7,161.49. Despite the great performance of banks, the index was weighed by mining-related equities, pressured by a sharp retracement in gold prices. Royal Bank of Scotland was the best performer, adding 5.86%, while leading losers’ list was Fresnillo, down by 7.42%, followed by Randgold Resources that shed 6,35%. Earnings reports were mixed, with Unilever reporting that difficult market conditions are likely to persist during the first half of 2017, although its pre-tax profit rose 4.2% in 2016. The index has been confined to a tight range ever since the week started, but presents a negative tone daily basis, contained by selling interest around the 20 DMA and with technical indicators slowly heading lower within negative territory. In the 4 hours chart, technical indicators have turned modestly higher, with the RSI still below its mid-line and the Momentum within neutral territory, but with the index below a bearish 20 SMA, limiting chances of a recovery for this last day of the week.

Support levels: 7,130 7,085 7,025

Resistance levels: 7,180 7,241 7,288

DAX

European indexes closed mixed, with the German DAX managing to add 42 points to 11,848.63, underpinned by a recovery in pharmaceuticals and health care companies. Also, a continued advance in banking-related stocks across the region fueled the advance. Bayer was the best performer, ending the day up by 1.85%, whilst Fresenius Medical Care added 1.57%. Despite an early rally, Commerzbank closed the day pretty much flat, down 0.04%, while Volkswagen was the worst performer, shedding 1.70%. Technically, the daily chart shows that the index holds well above bullish moving averages, with the shortest being the 20 DMA at 11,605, but also that technical indicators have lost their upward strength, holding anyway within positive territory. In the 4 hours chart, the technical picture is quite alike, with the RSI indicator flat around 70 and the Momentum consolidating at weekly highs, not enough to support a downward move. The index has traded as high as 11,891, but faces a strong resistance at 11,920, May 2015 high, with gains beyond this last probably fueling the advance.

Support levels: 11,796 11,757 11,694

Resistance levels: 11,865 11,920 11,975

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