The Greenback re-engages

After the massive Global stock market rally Wednesday, equity markets have spent the greater part of the New York session consolidating those gains. However, currency markets were in catch-up mode as the USD finally woke up from its recent slumber.We can point to a few minor reasons for the recent dollar disengagement, but it looks like dealers have shaken off their current angst as the focus has correctly shifted back to the interest rate divergence narrative. With US yields surging, the interest differentials were just too luscious for dollar bulls to sit idly.

Australian Dollar

With upward momentum capped on the back of Wednesday’s CPI miss, the Aussie succumbed to the broader US dollar rally overnight but remains supported on the crosses. The tepid inflation print remains a consistent theme and a huge problem for the RBA. With elements in the market leaning toward an RBA cut ahead of the next US Fed hike, top side momentum will likely be capped near term as Macro funds sell into rallies. However, AUD support remains intact from surging Iron ore prices which continue to froth. Indeed , we are back to the tug of war between the prospect of higher US interest ratesversus rising commodity prices. After all is said and done, it seems we always end up back at this endgame.

Japanese Yen

USDJPY rallied overnight benefiting from substantial gains in the Nikkei and surging US bond yields. The move above 114 triggered stops and while battle lines played out around 114.30 technical resistance zone, and the dollar went “ bid me buy me” on a convincing move to 114.85 before profit-taking. However, it is far from all aboard the Dollar train as there remains an element of doubt concerning Tumpenomics. Which could over promise and under delivers on economic policy. However, for the speculative element in the market, another leg higher in the ten-year UST’s yields, would be hard to ignore and we could see an extension through 115.00. However, these markets remain extremely fragile, and accepted correlations can once again break down as quickly as they melded overnight.

Chinese Yuan

Short-term speculative money on USDCNH is tracking broader USD movements, while the longer term players remain buyers on outsized dips. China watcher continue to be in evaluation mode while digesting the plethora of headlines

S and P chimed in with a shot across the bow with a negative outlook based on the credit-fueled mainland economy which poses downside risk for a hard landing. A topic the market has been deeply focused on for some time.

However, the big story is the Pboc as told lender to control their rampant lending policies to curb the excessive leverage they have contributed to the markets. Indeed the curbs are guided more to the mortgage markets as the feel of a real estate bubble looms large

As for the currency, dealers focus is now shifting the “ currency manipulator” storyline again.. Moreover, I think this will become a major theme after the Lunar New Year holiday.

Times are certainly different from yesteryear when China was prone to manipulate its currency to the benefit of Chinese exporters. However, today, China continues to iron grip the Yuan to prevent unwanted currency depreciation which has been at heart of the financially destabilizing increase in capital outflow. So much so that it is hindering the Yuan’s global acceptance among international investors who have been advocating for more liberal exchange rate policies for years. Given the fact that the US Treasury has not declared China as a currency manipulator since 1994, it is unlikely they can or will make that claim. However, the real question is what would happen if the US Treasury takes this course? Well not much, other than a futile attempt to Jawbone the markets, investors will likely brush aside the comments and will continue to express their current bias for longer term Yuan depreciation.

EM markets

Regionally it is hard to divorce ourselves from the Mexico storyline as for how that plays out could have far-reaching ramifications locally. The whipsaw we see in APAC currencies is likely due to the confusion in USDMXN, as President Trump is pulling few punches in his proposed trade sanctions directed at Mexico.When politics becomes the primary driver behind currency markets, expect confusion to reign. In the meantime continue to expect fast short term money to move market’s intraday as the longer term positions await clarity on numerous fronts.

GOLD - The commodity closed further lower on Thursday leaving risk of more weakness on the cards. On the downside, support comes in at the 1,180.00 level where a break will turn attention to the 1,170.00 level. Further down, a cut through here will open the door for a move lower towards the 1,160.00 level. Below here if seen could trigger further downside pressure targeting the 1,150.00 level. Conversely, resistance resides at the 1,200.00 level where a break will aim at the 1,210.00 level. A turn above there will expose the 1,220.00 level. Further out, resistance stands at the 1,230.00 level. All in all, GOLD looks to weaken further.

Dollar is trying to recover against other major currencies today as recent selloff looks exhausted. Initial jobless claims rose to 259k in the week ended January 21, above expectation of 245k. That's the highest level in a month due to holiday volatility. Initial claims have, nonetheless, stayed below 300k handle for the 99 straight weeks and counting, the longest streak since 1970. Continuing claims rose 41k to 2.1m in the week ended January 14. Also from US, trade deficit narrowed slightly to USD -65.0b in December. Wholesale inventories rose 1.0% in December.

In UK, the government published the bill for Brexit today and set 3 days for debates in parliament starting February 8. The so called European Union (Notification of Withdrawal) Bill is a short one without any detail. Prime minister Theresa May said yesterday a white paper will be published and pass through the Parliament before triggering Article 50 by end of March. Brexit Secretary David Davis said that the process will be "as expeditious as we can be".

Sterling retreats mildly today but remains the strongest major currency for the week. UK GDP grew 0.6% qoq in Q4, unchanged from prior quarter and beat expectation of 0.5% qoq. On annual basis, GDP grew 2.2% yoy, above expectation of 2.1% yoy. Index of services rose 1.0% 3mo3m in November, above expectation of 0.9% 3mo3m. BBA mortgage approvals rose to 43k in December. CBI reported sales dropped to -8 in January. Also from Europe, German Gfk consumer sentiment rose to 10.2 in February. Swiss trade surplus narrowed to CHF 2.72b in December.

Elsewhere, New Zealand CPI rose 0.4% qoq, 1.3% yoy in Q4. Japan corporate service price rose 0.4% yoy in December.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0716; (P) 1.0742 (R1) 1.0774; More.....

A temporary top is in place at 1.0744. Intraday bias in EUR/USD is turned neutral first. Above 1.0774 will extend the rise from 1.0339. But such rise is seen as a corrective move and should be limited by 1.0872 resistance. On the downside, below 1.0588 minor support will argue that it's completed and turn bias back to the downside for 1.0339 support.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Economic Indicators Update

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Daily Pivots: (S1) 1.2535; (P) 1.2586; (R1) 1.2683; More...

With 1.2414 minor support intact, rebound from 1.1986 could still extend higher. But again, such rise is seen as the third leg of the consolidation pattern from 1.1946. We'd expect strong resistance at 1.2774 to limit upside and bring down trend resumption eventually. On the downside, below 1.2414 minor support will turn bias to the downside for retesting 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

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Daily Pivots: (S1) 1.0716; (P) 1.0742 (R1) 1.0774; More.....

A temporary top is in place at 1.0744. Intraday bias in EUR/USD is turned neutral first. Above 1.0774 will extend the rise from 1.0339. But such rise is seen as a corrective move and should be limited by 1.0872 resistance. On the downside, below 1.0588 minor support will argue that it's completed and turn bias back to the downside for 1.0339 support.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

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Daily Pivots: (S1) 0.9963; (P) 0.9994; (R1) 1.0022; More.....

Intraday bias in USD/CHF is turned neutral with temporary low formed at 0.9958. With 1.0121 minor resistance intact, deeper decline is still expected. As noted before, rise from 0.9443 has completed at 1.0342 already, after failing to sustain above 1.0327 key resistance. Fall from there would now target 61.8% retracement of 0.9443 to 1.0342 at 0.9786 and below. On the upside, break of 1.0121 resistance is needed to indicate short term bottoming. Otherwise, near term outlook will stay bearish in case of recovery.

In the bigger picture, rejection from 1.0327 resistance suggests that consolidation pattern from there is still in progress. Fall from 1.0342 is seen as the third leg and retest of 0.9443/9548 support zone could be seen. But we'd expect strong support from there to contain downside. At this point, we're still expect the larger rally to resume later to 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

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Daily Pivots: (S1) 112.87; (P) 113.43; (R1) 113.82; More...

USD/JPY recovers mildly today but stays inside range of 112.51/115.61. Intraday bias stays neutral for the moment. Choppy fall from 118.65 is seen as a corrective move. In case of another decline, downside should be contained by 38.2% retracement of 98.97 to 118.65 at 111.13 to complete the correction and bring rebound. On the upside, above 115.61 will target a test on 118.65 first. Break will resume whole rise from 98.97 and target 125.85 key resistance.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

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Daily Pivots: (S1) 142.02; (P) 142.86; (R1) 143.91; More...

Intraday bias in GBP/JPY remains on the upside as rebound from 136.33 extends today. Corrective fall from 148.42 should have completed at 136.44 already. Further rally should be seen to retest 148.42 first. Break will extend the larger rise from 122.36 and target 150.42 fibonacci level next. n the downside, below 140.74 minor support will turn bias back to the downside for 136.44.

In the bigger picture, price actions from 122.36 medium term bottom are seen as developing into a corrective pattern. Upside is so far limited below 38.2% retracement of 195.86 to 122.36 at 150.42 for setting the medium term range. At this point, we don't expect a break of 122.36 in near term and the corrective pattern would extend for a while. Though, sustained break of 150.42 will target 61.8% retracement at 167.78.

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Daily Pivots: (S1) 121.48; (P) 121.87; (R1) 122.12; More...

Intraday bias in EUR/JPY stays neutral as consolidation from 124.08 extends. Rebound from 109.20 is not finished yet. Break of 124.08 will extend such rise and target 126.09 key resistance next. Meanwhile, below 120.54 will target 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39). We'd expect strong support from there to contain downside.

In the bigger picture, price actions from 109.20 medium term bottom are seen as part of a medium term corrective pattern from 149.76. There is prospect of another rise towards 126.09 key resistance level before completion. But even in that case, we'd expect strong resistance between 126.09 and 141.04 to limit upside, at least on first attempt. Sustained trading below 55 day EMA will pave the way to retest 109.20.

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Daily Pivots: (S1) 0.8475; (P) 0.8527; (R1) 0.8558; More...

The firm break of near term channel argue that corrective rise form 0.8303 has completed at 0.8851 already. Break of 0.8449 support will confirm this case. In that case, whole corrective fall from 0.9304 should have started the third leg through 0.8303 to 0.8116 support. In case of another rise, we'd now expect strong resistance at 61.8% retracement of 0.9304 to 0.8303 at 0.8922 to limit upside and bring near term reversal.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Deeper fall cannot be ruled out yet. But we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Overall, the corrective pattern would take some time to complete before long term up trend resumes at a later stage. Break of 0.9304 will pave the way to 0.9799 (2008 high).

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