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Foreign Exchange Market Commentary

EUR/USD

The American dollar plunged early US session following comments from Trump’s trade chief, Peter Navarro, who accused Germany of taking advantage of the US and its European counterparts by keeping the euro "grossly undervalued." This is not the first time US President Trump moves to talk down the local currency, as he already said last week that the dollar was "too strong" making US production less competitive against countries like China, which has a government-regulated currency. The EUR/USD pair traded as high as 1.0811, level last seen early December, before pulling back modestly.

Macroeconomic releases both shores of the Atlantic favored the rally, as EU data surprised to the upside, with January inflation up to 1.8% YoY the highest rate since February 2013. Core inflation however, remained unchanged at 0.9%. Also, the preliminary estimate of the Q4 GDP came in as expected at 0.5%, with the third quarter growth revised up to 0.4% from previous 0.3%, leaving the annual rate of growth in the region up to 1.8% yearly basis. In the US, on the contrary, the employment cost index came at 0.5% for the three months to December, below the previous and expected 0.6%, whilst the Conference Board’s consumer confidence index came in at 111.8 against previous 113.7.

The pair is closing the day above its 100 DMA for the first time since early October ahead of the FED’s monetary policy meeting this Wednesday. Given that this time is not a "live meeting," chances of a change in the ongoing policy or in the wording is less likely, which will only pressure the greenback further. Short term, the bias is towards the upside according to the 4 hours chart, as the price has broken above its 20 SMA, and stands far beyond the 38.2% retracement of the November/January decline at 1.0710. Technical indicators in the mentioned chart have pulled back from overbought readings alongside with price, but remain well above their mid-lines, far from suggesting an upcoming reversal. The pair has a major resistance area between 1.0800 and 1.0840, where the pair bottomed for most of 2015 and 2016, and where it also stands the 50% retracement of the mentioned slide at 1.0820. Should the price extend beyond this area, the rally has scope to extend up to 1.0930, the next Fibonacci resistance during the upcoming sessions.

Support levels: 1.0650 1.0610 1.0565

Resistance levels: 1.0710 1.0740 1.0770

USD/JPY

The USD/JPY pair fell to its lowest since November 30th, printing 112.07 following a new batch of US Trump protectionist comments. In a meeting with chief executives of several top drug-makers, he accused drug companies of outsourcing production because of currency devaluation in other countries. His trade chief, Peter Navarro, said that Germany is taking advantage of the US and its EU counterparts by using a “grossly undervalued” euro. Earlier on the day, the Bank of Japan keep its economic policy unchanged, but sounded mostly optimistic, rising its growth projections from 1.3% to 1.5% for the fiscal year starting this April. The pair initially rally with the news, but risk aversion kept the upside limited. After the dust settled, the USD/JPY pair bounced from the mentioned low, after flirting with the 38.2% retracement of the post-US election rally, but so far remains unable to extend beyond the 113.00 level, overall poised to extend its slide. Technical readings in the 4 hours chart support the bearish case, given that the price is now well below a bearish 100 SMA, whilst technical indicators have barely bounced from oversold readings, rather reflecting the latest bounce than suggesting downward exhaustion.

Support levels: 112.55 112.00 111.60

Resistance levels: 113.00 113.45 113.90

GBP/USD

The GBP/USD pair fell down to 1.2411, but closed the day above the 1.2560 level, reversing most of its weekly losses on broad dollar’s weakness. The Pound fell early in the London session, following the release of the BOE’s December money figures, as the data showed that personal borrowing grew at a slower pace in the last month of 2016 for the first time in five months. Consumer credit in December rose by £1.039B against an expected advance of £1.700B, and well below previous £1.926B, the smallest monthly increase since May 2015. Mortgage approvals also surged by less than expected, up by just under 68,000 in the month. From a technical point of view, the GBP/USD has bounced sharply from the 38.2% retracement of this January bullish run, and is back above the 23.6% retracement of the same rally around 1.2520. In the 4 hours chart, the price is also above a now flat 20 SMA, whilst technical indicators have lost their upward strength right after entering positive territory, indicating a limited upward potential. Nevertheless and with the ongoing dollar’ weakness, the pair can recover further on a break above 1.2590, the daily high.

Support levels: 1.2460 1.2410 1.2375

Resistance levels: 1.2490 1.2530 1.2580

GOLD

Gold prices surged for a third consecutive day, with spot settling at $1,213.20, as the financial world continued to unwind the "Trump-trade." Stocks fell sharply alongside with the greenback, while safe-haven assets stood victorious amid increasing uncertainty over the US future. The US Federal Reserve will have a monetary policy meeting this Wednesday, but the meeting poises no risk for gold, as there are little chances that the FED will offer a hawkish stance in this "non-live" meeting. From a technical point of view, the upside is favored, given that in the daily chart, the bright metal is closing the day above a bearish 100 DMA, whilst technical indicators have bounced from their mid-lines, with the RSI heading sharply higher around 62. In the 4 hours chart, the price is well above its 20 and 100 SMAs, whilst technical indicators have pared gains within overbought territory, but with no signs of changing course. Spot topped at 1,220.02 this January, the level to surpass to confirm another leg higher towards the 1,230.00 region, where it has the 50% retracement of the latest monthly decline.

Support levels: 1,204.50 1,196.10 1,187.80

Resistance levels: 1,220.05 1,229.80 1,241.35

WTI CRUDE

Oil prices rose on dollar weakness, with WTI futures reaching a daily high of $53.55, but it was unable to hold on to gains and pulled back late US session, to settle marginally higher daily basis around 52.80. In the news, Iran’s Oil Minister Bijan Zanganeh said this Tuesday that US oil companies willing to do business in Iran will not be banned from doing so, despite Trump’s executive order to suspend visas for Iranian citizens. US crude maintains the neutral technical stance seen on previous updates, as in the daily chart, technical indicators head nowhere around their mid-lines, whilst the price keeps hovering back and forth around a flat 20 SMA. Shorter term, and according to the 4 hours chart, the bias is also neutral, with the scale lean towards the downside as the price is hovering around horizontal 20 SMA, whilst technical indicators failed to surpass their mid-lines, turning back south ahead of the Asian opening.

Support levels: 52.00 51.60 51.10

Resistance levels: 53.00 53.65 54.30

DJIA

Worldwide equities closed in the red, with investors’ sentiment undermined by US President Trump executive orders favoring protectionism, and failing to provide of clues on growth-related measures. The Dow Jones Industrial Average fell by 106 points or 0.53% at 19,84.36, while the Nasdaq Composite and S&P ended the day little changed, at 5614.79 and 2,278.90 respectively. Equities recovered some ground ahead of the close, with the DJIA trading as low as 19,783 intraday. Financials suffered the most from the Trump-trade unwind, with Goldman Sachs down 1.98% and JP Morgan shedding 1.72%. Heath care Pfizer was the best performer, up by 1.29%. The Dow settled a few points below a horizontal 20 DMA, whilst technical indicators keep heading south around their mid-lines in the daily chart, maintaining the risk towards the downside. In the 4 hours chart, the benchmark is far below a sharply bearish 20 SMA that reflects the strong downward momentum seen this week, whilst technical indicators have managed to bounce from oversold readings, but remain far below their mid-lines, far from suggesting an upcoming recovery for this Wednesday.

Support levels: 19,868 19,806 19,745

Resistance levels: 19,897 19,950 20,010

FTSE 100

The FTSE 100 extended its latest decline, down this Tuesday by 19 points to close at 7,099.15, as gains in the mining sector were offset by a sharp recovery in the Pound ahead of London’s close. Randgold Resources added 2.66%, Anglo American surged by 1.88%, whilst Fresnillo closed 1.75%, all making it to the top 10 list. Tesco, on the other hand, was the worst performer, down by 5.9%, undermined by soft consumer’s data released at the beginning of the day. The Footsie maintains a bearish bias according to technical readings, given that in the daily chart, indicators continue to grind lower within bearish territory, whilst the benchmark remains below its 20 SMA. In the 4 hours cart, a bearish 20 SMA keeps capping the upside, now around 7,154, while technical indicators hover within bearish territory with no clear directional trend, amid the limited intraday range seen over the past few days.

Support levels: 7,104 7,057 7,011

Resistance levels: 7,154 7,183 7,241

DAX

The German DAX fell 1.25% or 146 points, to close at 11,525.31, with all major European indexes closing in the red, despite encouraging inflation data coming from the region. EU CPI advanced to 1.8% in January, when compared to a year earlier, from previous 1.1% in December, whilst the unemployment rate in the region fell to 9.6% in the last month of 2016. In Germany, soft December retail sales dented local sentiment. Within the DAX, RWE AG was the best performer, up by 0.92%, followed by Deutsche Boerse which added 0.81%, but losers outnumbered gained, with Adidas being the worst performer, down by 2.75%. Technically, the daily chart shows that the index is below a now flat 20 SMA, whilst technical indicators have barely entering bearish territory, indicating some further slides are likely, particularly on a break below 11,533, the daily low. Shorter term, and according to the 4 hours chart, the risk is also towards the downside, with the benchmark below its 20 and 100 SMAs and technical indicators posting modest bounces from oversold readings.

Support levels: 11,533 11,480 11,425

Resistance levels: 11,645 11,699 11,745

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