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Investors remain insensitive to improving US yields

Since the beginning of the week, the US dollar has consolidated losses against most of its peers. However, it seems that this period of is over as investors have started to sell the greenback once again. On Wednesday, the yen rally resumed with USD/JPY breaking the 110 support to the downside. Once again, this move is rather due to a broad US dollar weakness than a positive surprise from Japan. The greenback is extending losses not just against the yen but also against all G10 currencies as investors anticipate the negative effects of Trump’s last announcement in term of trade policy.

Market participants have turned a blind eye on the improving interest yield differential between the USD and its peers and rather focused on rising protectionism in the US. Indeed, the incentive for traders to hold the USD has improved consistently since the beginning of the fourth quarter last year but investors were unimpressed. This is especially true for the Japanese yen has the 2-year yield differential has slipped continuously, reaching -2.19% this morning, compared to -1.50% in mid-September. In spite of this clear incentive for investors to hold the greenback, investors are rather focus on political developments in the US, ignoring even the persistent surprise in US economic data.

Indeed, since the beginning of October last year, the US economy has kept sending strong positive signals but it didn’t led to a dollar rally neither. All the economic sectors have exceeded median forecast with business cycle indicators and the housing and real estate market leading the charge.

In short, investors are just waiting for the dust to settle on trade policy and once investors will get better clarity, we may again see rising interest for the USD.

Greece finally getting closer to financial independence

Receiving international loans since 2010 and more recently through the EU 2015 bailout (EUR 40.2 billion distributed out of EUR 86 billion made available) and on the verge of receiving additional EU financial assistance of EUR 6.7 billion in February, Greece has made significant efforts and implemented more than 110 reforms imposed by the European Commission. In turn, the Greek economy was able to stabilize and finally come up with positive growth numbers since 2017. Greece is giving clear signs of recovery on the market place: Q3 2017 Real GDP Y/Y increased by 1.30% in September 2017 (conclusive progression since the 0.10% in March 31st 2015), December CPI Y/Y +1.0% (January 2015 CPI Y/Y: -2.80%), Greece October 2017 unemployment rate is reduced by 5.1% since January 1st 2015 (estimated at 20.70%), S&P Global Ratings recently raised Greece’s rating from “B-“ to “B”. Investors remain positive that progress is up and running as Athens Stock Exchange General Index surged by 1.62% following EU Commission report with regard to extended financial support on Monday (+ 6.54% since beginning of the year).

Greece has still a long way to go but is on good track to restore financial independence by the end of the year (EU 2015 bailout planned to end in August 2018).

Spot Gold rallies for the second day and hit multi-month high at $1349 on Wednesday after fresh bullish acceleration broke above former high at $1344 (15 Jan) completing $1344/$1324 corrective phase and signaling continuation of steep uptrend from $1236 (12 Dec low).

US dollar came under fresh pressure and hit new over three-year lows against the basket of major currencies, inflating gold price.

Eventual break above $1344 barrier opens way towards key barrier at $1357 (03 Sep peak), regain of which would generate strong bullish signal for continuation of broader uptrend from $1122 (15 Dec 2016 low).

Former high at $1344 now reverts to initial support, guarding strong supports at $1334/33 (rising 10SMA / top of thick 4-hr cloud), which are expected to protect the downside.

Res: 1350, 1357, 1360, 1367
Sup: 1344, 1340, 1333, 1331

Bulls accelerated strongly on Wednesday, ending three-day consolidation on break above previous high at 0.8038.

Rally hit new four-month high at 0.8061, coming ticks ahead of 27 July high at 0.8065 and focusing next target at 0.8102 (20 Sep spike high) and key barriers at 0.8124 (08 Sep peak) and 0.8161 (14 May 2015 high).

Fresh rally was boosted by overall weaker dollar which could help in final push towards 0.8124 target.

Close above 0.8038 will be strong bullish signal, however, hesitation on approach of 0.8124 cannot be ruled out as daily studies are overbought.

Daily MA's in firm bullish setup continue to underpin, with rising 10SMA offering solid support at 0.7975.

Res: 0.8065, 0.8102, 0.8124, 0.8161
Sup: 0.8038, 0.8000, 0.7975, 0.7958

The U.S dollar has fallen sharply lower against the Japanese yen, dropping below the key 110.00 level in early Wednesday trading. The move lower was sparked by the latest round of selling in the greenback, with the U.S dollar index now trading below the key 90.00 level. The USDJPY pair has so far found support around the 109.80 level, with price-action still holding below the psychological 110.00 level, as we move into the start of European trading. Traders will likely look to Manufacturing data coming from the United States later today, and the 90.00 level on the U.S dollar index.

The USDJPY pair is strongly bearish while price-action trades below the 110.18 level, further selling towards 109.80 and 109.50 appears likely.

Should USDJPY buyers manage to push the pair above the 110.18 level, the 110.33 and 110.58 levels will then come into focus.

The euro has moved to a new 2018 trading-high against the greenback in early Wednesday trading, hitting 1.2336, as the U.S dollar index sinks to new three-year lows. The move higher in the EURUSD pair was sparked by a technical breakout above the 1.2275 level on Tuesday, following record European Economic Confidence data. Price-action on the EURUSD is currently holding above the 1.2300 level, with the strong bullish theme intact while buyers manage to hold the pair above the 1.2275 level.

The EURUSD pair remains strongly bullish while trading above the 1.2275 level, further upside towards 1.2350 and 1.2400 seems possible.

Should the EURUSD pair start to trade below the 1.2275 level, sellers may look to test support around the 1.2258 and 1.2230 levels.

A steady stream of economic data will flow through the financial markets on Wednesday, giving investors the latest insights on developments in the Eurozone and United States.

A slew of PMI reports will make headlines in European trading, with IHS Markit set to report on manufacturing and services for key regional markets. The data releases begin at 08:00 GMT, and will feature French, German and Eurozone PMI numbers.

The Eurozone flash manufacturing PMI for January is expected to dip slightly to 60.3 from a previous reading of 60.6. The services index is projected to come in at 56.4, down from 56.6. The Composite PMI gauge, which tracks manufacturing and services, is forecast to edge up to 58.3 from 58.1.

On the PMI scale, anything above 50 signals expansion in economic activity.

Shifting gears to the United Kingdom, the Office for National Statistics will report on employment at 09:30 GMT. The monthly report will feature the latest data on the claimant count rate, average hourly earnings and the unemployment rate. The ILO unemployment rate is forecast to hold steady at 4.3% in the three months through November.

Markit will also provide the latest PMI numbers for the United States beginning at 14:45 GMT. The US manufacturing and services sectors are forecast to grow at a steady pace through the first month of the year. The Composite PMI is expected to come in at 53.1, down from 54.1 in December.

Meanwhile, the National Association of Realtors (NAR) will report on existing home sales at 15:00 GMT. The sale of previously owned homes is forecast to drop 2.2% to a seasonally adjusted 5.7 million in December.

In the energy markets, oil traders will be keeping a close eye on weekly crude inventory data courtesy of the US Energy Information Administration (EIA). The EIA report is expected to show a weekly drawdown of 1.3 million barrels in the period ended 19 January.

EUR/USD

The euro enjoyed a broad rally on Tuesday, as the dollar continued to backtrack against a basket of peers. The EUR/USD exchange rate was last seen trading at 1.2313 for a gain of 0.1%. The pair’s next target is coming up at 1.2350.

GBP/USD

The British pound capitalized on a weaker dollar Tuesday to climb above 1.4000 US for the first time since the Brexit debacle. The GBP/USD was up again in Asian trade, climbing 0.3% to 1.4036. The market is now eyeing the psychological 1.4050 level as the next target

UK OIL

Oil prices continued higher on Tuesday, with the international benchmark climbing back above $70 a barrel on London’s ICE futures exchange. At last check, Brent was trading slightly below $70. The outlook remains highly favourable as global producers continue to drain excess supplies from the market.

Cable probes above 1.41 barrier after overall positive UK jobs data in November further boosted pound.

Unemployment and average earnings remained unchanged and in line with expectations at 4.3% and 2.5% respectively, while jobless claims unexpectedly rose to 8.6K in Nov, coming above forecast at 5.4%, but previous month’s release was revised t lower to 12.2K from 5.9K.

On the other side, average earnings excluding bonus beat forecast with 2.4% in Nov vs 2.3% previous month / forecast.

Additional support for pound came on comments from US Treasury secretary Mnuchin in Davos who said weaker is better and sent the greenback further down against its major counterparts.

Cable looks for sustained break above psychological 1.41 barrier which would further fuel pound’s rally for extension towards Fibonacci expansion targets at 1.4123 and 1.4197.

However, bulls may show hesitation at 1.41 barrier as markets need to digest data and overextended conditions on daily chart continue to warn of correction, but so far without firmer bearish signals.

Broken 1.40 barrier should ideally contain dips.

Res: 1.4118, 1.4123, 1.4197, 1.4250
Sup: 1.4048, 1.4020, 1.4000, 1.3963

The extends steep descend into second straight day on Wednesday with fresh bearish acceleration sparked by eventual break below key supports at 110.15/00 (Fibo 61.8% of 107.31/114.73 rally / psychological support) and triggering stops parked below.

Bears eye immediate target at 109.54 (15 Sep spike low) ahead of more significant 1.0906 support (Fibo 76.4% of 107.31/114.73 ascend), as the greenback’s sentiment soured further on comments from US Treasury secretary Mnuchin in Davos, favoring weaker dollar.

Overall picture is firmly bearish and favors further easing but bears could be interrupted by short covering.

Former key supports at 110.00/15 now act as resistances with stronger upticks expected to stay capped by falling daily Kijun-sen / 10SMA (110.66/110.73).

Res: 110.00, 110.15, 110.66, 110.73
Sup: 109.54, 109.06, 108.60, 108.26

EUR/USD

Current level - 1.2300

Yesterday's low at 1.2220 shows a finale of the corrective pullback below 1.2320 and the uptrend is renewed, towards 1.2500 area. Initial intraday support lies at 1.2270, followed by the crucial low at 1.2220.

USD/JPY

Current level - 110.00

The recent failure at 111.20 signals a completion of the consolidation pattern above 110.20 and the bias is bearish, for a test and break through 109.50, en route to 108.50 zone. Key intraday hurdle lies at 110.50 and crucial on the upside is 111.20.

GBP/USD

Current level - 1.4033

Yesterday's slide to 1.3910 was a corrective one and the uptrend is renewed, towards 1.4150, en route to 1.4340 zone. Crucial on the downside is 1.3910 low.

Cable is establishing above 1.40 handle on Wednesday on fresh acceleration higher after bulls showed hesitation on Tuesday and ended trading in long-legged Doji, closing slightly below 1.40. Bullish continuation was triggered by fresh weakness of the US dollar which came under fresh pressure on global trade worries and concerns of trade message Trump administration will give at Davos meeting. Pound maintains strong bullish sentiment and continues to trend higher, focusing round-figure barrier at 1.4100 and Fibonacci 161.8% of current wave C of five-wave sequence from 1.3038 which lies at 1.4123. UK employment data are key event for sterling today. Unemployment is expected to stay unchanged at multi-year low at 4.3% in Nov while jobless claims are expected to drop (5.4K f/c vs 5.9% previous month). Average earnings including bonus are forecasted at 2.5% in Nov, unchanged from the previous month and at the highest in eleven months. Stable jobs sector is another boost for overall bullish pound with positive shift in Nov expected to further accelerate bulls. Broken 1.40 barrier now reverted to initial support, followed by Tuesday spike low at 1.3915, reinforced by rising 7SMA and guarding ascending 10SMA (1.3849) which marks strong support.

Res: 1.4100, 1.4123, 1.4197, 1.4250
Sup: 1.4000, 1.3915, 1.3849, 1.3804