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The US Dollar has continued to trade in a narrow descending channel against the Canadian Dollar. The decline was temporary stopped by the weekly support level at 1.3181 on Wednesday.

The currency pair is currently trading near a resistance level formed by the 50-hour simple moving average at 1.3249.

If the USD/CAD pair passes the 50-hour SMA, bullish traders would likely aim for a resistance cluster set by the 100-hour moving average and the monthly pivot point at 1.3309.

However, technical indicators suggest that the currency exchange rate could continue its decline today.

The New Zealand Dollar appreciated about 79 base points against the US Dollar on Wednesday. The currency pair breached a resistance cluster formed by the monthly and the weekly pivot points at 0.6795 during Wednesday's trading session.

However, after testing the resistance cluster as mentioned above, the exchange rate made a pullback towards the lower boundary of an ascending channel pattern at 0.6779.

Most likely, the currency exchange rate will aim for a support level formed by the 50– and 100-hour SMAs near the 0.6748 region during the following trading session

Another day and another defeat, this is what Theresa May is suffering from. The Prime Minister had it in her face again yesterday when she suffered another loss in the House of Commons. May has completely lost control of the Brexit divorce, and the sad aspect is that she has no clue about the time table either.

In the coming few days, she is going to face another major defeat in the parliament when the Brexit deal will go for a vote in the Parliament. Given that her office is already preparing for this downfall moment, it shows the prime minister has no confidence in her deal any more. The opposition leader, Jermy Corbyn is set to deliver a major speech on Brexit today and it is expected that he is going to call for general elections if the prime minister loses the upcoming week’s vote.

In terms of sterling, traders already priced all of this drama and hence we have not seen much of volatility creeping. Traders have already priced her defeat in the parliament. I think the chances of another referendum are high and it is likely that we may actually get another referendum and extension of the current Brexit deadline in order to deal with the situation.

All of this could be positive for Sterling. In the option’s market, traders have already started to place more bullish bets and the pound/dollar two-week risk reversal has climbed to a critical level, confirming the earlier statement. The last time we have seen this level for the two-week risk reversal was back in early January 2018, and at the time, the Sterling/dollar pair was trading above the 1.40 mark.

As for the ongoing US government shutdown situation, Mr Trump showed another sign of childish behaviour yesterday when he adjourned the meeting abruptly. The president stormed out of the meeting without any resolution on the US government shutdown and this pushed the US equity markets lower again. Remember, we have seen a major rally since Steven Mnuchin called the special meeting to restore the confidence and since that time, the S&P500 is up nearly 10%.

Market participants were most worried about four things; the US government shutdown, the slowdown in the Chinese economy, the trade war between the US and China. Finally, the Fed’s hawkish tone. It is by no mean any stretched statement that the Fed has become a prisoner of the markets. Time over time, they have learned that they need to pay attention to the market conditions and their policy cannot discount this important fact. The rout in the equity markets which we have experienced made it clear that the Fed needs to understand that investors do not like the idea of even one interest rate let alone two. Since then, the Fed policy members have watered down their hawkish tone.

Nonetheless, the U.S markets are still holding on to some solid gains for this year, the S&P is up by 3.12%, the Dow Jones by 2.36% and the NASDAQ by whopping 4.84%.

Crude oil prices have retraced from their highs breaking their 7 consecutive days of gain. The price has rebounded nearly 23 percent since it hit an 18-month low on Christmas Eve. Investors pushed the prices higher because of the increase in confidence around the production cuts by OPEC and then there was an element that the US-China trade talks are going in the right direction. As long as the major producers and their allies are committed in keeping the supply under control, we don’t think that there is anything to worry about. The price is likely to consolidate between the 47 to 55 mark.

The BoC remained on hold at +1.75% as was expected, however may have sounded more hawkish than what markets had expected. In the accompanying statement the bank stated that the policy rate will need to rise over time and the pace will depend on the oil market, the Canadian housing market and global trade policy. It should be noted though that the bank issued new forecasts where the CPI remains unchanged while the GDP slows down somewhat for 2019. BoC governor Poloz in his opening statement at the following press conference, mentioned the alignment of a number of negative developments and at the end stated that the bank will remain data dependent in its future interest rate decisions. Overall, we may see Canadian financial releases creating more volatility over the coming period and the oil market to have an even greater effect on the CAD. USD/CAD dropped even lower yesterday at the release of the interest rate decision however corrected later on, remaining above the 1.3215 (S1) support line. Should the USD bearishness continue, we could see the pair dropping even lower today. Please note, that the pair’s RSI in the 4 hour chart remains below the reading of 30 and continues to signal a possibly overcrowded short position. If the bears dictate once again the pair’s direction, we could see the pair breaking the 1.3215 (S1) support line and aim for the 1.3145 (S2) support level. Should on the other hand the bulls take over, we could see the pair breaking the 1.3290 (R1) resistance line and aim for higher grounds.

USD weakness on dovish Fed comments and minutes

The USD weakened against a number of its peers yesterday as a string of dovish comments were made by Fed officials and the Fed minutes released included a rather dovish context. The context of the Fed’s meeting minutes revealed that a number of officials, felt that the Fed could be patient on further hikes, prompting analysts to note that a weaker dollar may be underway for the first semester of 2019. Also analysts pointed out that chances for the Fed not hiking rates in 2019 have increased after the release of the minutes and the comments made by Fed officials. Also the USD may have weakened, as investors reduced safe haven bets due to optimism about the US-Sino trade talks, however concrete evidence for progress made is still expected. Overall, we maintain a bearish outlook for the USD currently. EUR/USD rallied yesterday breaking consecutively all resistance lines and landing above the 1.1550 (S1) resistance hurdle (now turned to support). We maintain a bullish outlook for the pair should the USD bearishness linger on. Should the pair find fresh buying orders along its path, we could see it breaking the 1.1610 (R1) resistance line, while if the pair comes under the selling interest of the market, we could see it breaking the 1.1550 (S1) support line and aim for the 1.1500 (S2) support barrier. Please be advised that the RSI indicator in the 4 hour chart has clearly broken above the reading of 70, implying a possibly overcrowded long position. Also we would like to note that the release of ECB’s meeting minutes and Fed Chairman Powell’s speech today could prove to be the main points of interest for the pair. Especially should Powell’s speech in the economic club of Washington today, confirm the Fed’s dovishness once again, the USD could weaken even further. Such a scenario could be strengthened by the recent and almost “coordinated” comments made by Fed officials. On the other hand, we may see Powell trying to soften the blow on the markets in maintaining a more neutral stance in his speech.

In today’s other economic highlights:

In today’s European session, we get from Norway and the Czech Republic the inflation rates for December, and in the American session we get the US initial Jobless claims as well as Canada’s building permits growth rate for November. As for speakers, Richmond Fed President Barkins, St. Louis Fed President Bullard, Chicago Fed President Evans and Minneapolis Fed President Neel Kashkari speak.

USD/CAD H4

Support: 1.3215 (S1), 1.3145 (S2), 1.3060 (S3)
Resistance: 1.3290 (R1), 1.3350 (R2), 1.3425 (R3)

EUR/USD H4

Support: 1.1550 (S1), 1.1500 (S2), 1.1465 (S3)
Resistance: 1.1610 (R1), 1.1655 (R2), 1.1700 (R3)

NZDUSD has recovered substantially after the selling interest from the 0.6968 barrier, almost hitting the 61.8% Fibonacci retracement level from 0.6968 to 0.6560, around 0.6812. Currently, the price is trading well above the 20- and 40-simple moving averages (SMAs) in the 4-hour chart. However, the technical indicators are suggesting flat to bearish movement as the RSI is sloping down in the positive zone and the MACD is moving sideways above the trigger line.

A move to the upside could see immediate resistance at the 61.8% Fibonacci level of 0.6812. Should the market increase positive momentum above this area, the 0.6880 could be next the level for investors to focus on. A stronger barrier, though, could be found at the 0.6910 barrier, registered on December 11.

Should the pair face more negative pressures, the market could meet support at the 50.0% Fibonacci of 0.6765, which stands slightly above the 0.6752 hurdle and the 20-SMA. A successful close below this level could see a retest of the 38.2% Fibonacci of 0.6715.

To sum up, NZDUSD has been trading higher in the very short-term following the rebound on the 0.6560 support.

• Dollar falls sharply after Fed signals it will be 'patient'; a slew of key speakers will be in focus today
• Euro advances, and attention now turns to the ECB minutes at 1230 GMT
• BoC stands pat, keeping further gradual hikes on the table
• China stokes trade optimism, but US stock futures flashing red

Dollar capitulates on Fed speak, extends losses after FOMC minutes

The main mover in FX markets yesterday was the US dollar, which fell significantly and across the board even before the latest FOMC minutes were released. The greenback started to slide after regional Fed Presidents Evans and Bostic struck a cautious tone, hinting the Fed should probably wait a while for fresh data before making any more moves. Then a few hours later, the minutes from the latest FOMC meeting confirmed exactly that, indicating that 'many' officials felt the Committee could be 'patient' about further tightening.

The overarching message was – as Powell hinted last week – that the Fed is listening to market concerns and won't rush into any further hikes unless, and until, incoming data warrant as much. The result was a further pricing out of the already-scarce market rate expectations for 2019, which hurt the dollar but propelled US stock indices higher. Overall, the dollar's sources of support seem to be diminishing following this shift in the Fed's reaction function, so it wouldn't be surprising to see the currency remain on the back foot for now, particularly in case trade tensions subside further.

Today, there's a slew of Fed speakers on the agenda, including Chair Powell (1745 GMT), Vice Chair Clarida (2350 GMT), and regional Fed Presidents Barkin (1335 GMT), Bullard (1730 GMT), Evans (1800 GMT), and Kashkari (1820 GMT).

Euro capitalizes on dollar weakness, looks to ECB minutes

The key beneficiary of the greenback's softness was the single currency, with euro/dollar touching a three-month high. Today, all eyes will turn to the minutes from the ECB's December meeting, due at 1230 GMT. Markets will look at whether policymakers are even more worried about growth than President Draghi let on at that gathering, and whether the next meeting could see another dovish shift in language. Especially since the bloc's economic data pulse has weakened further since.

While such signals may work against the euro, note that the currency has remained resilient in the face of bad news recently, so any downside may be limited. Namely, with markets pricing out all future Fed tightening but ECB rate pricing remaining stable, yield differentials between US and Eurozone are narrowing in Europe's favor, effectively keeping a 'floor' under euro/dollar – evident by the pair's higher lows lately.

Loonie undecided as BoC seems less dovish than expected

The BoC remained on hold yesterday as expected, and appeared somewhat less cautious than many had anticipated, by sticking to its guidance that further hikes will probably be needed over time. Although the Bank appeared quite cautious on many subjects, the mere fact it didn't signal a clear intention to pause hikes stood out. Dollar/loonie fell in the aftermath, though that may have also reflected broad dollar weakness, as the Canadian currency lost ground versus the euro for example, even in a session where oil prices soared after Saudi Arabia hinted at more production cuts.

China say trade talks went well, but stock futures dive

The US-China trade talks lasted one day longer because both sides were serious about making progress, China's Commerce Ministry said earlier today, amplifying hopes that these negotiations may ultimately bear fruit. Despite this optimism, Asian equity markets were mixed while futures tracking the major US indices are pointing to a much lower open today.

The catalysts behind this shift may have been reports that the two sides are still 'far' apart on Chinese subsidies to state firms, as well as news that President Trump may cancel his trip to Davos this month, where he was anticipated to meet Chinese officials. Dissapointing Chinese PPI data overnight may have also contributed, as slowing producer prices may be a signal factory demand for raw materials is cooling, feeding the narrative that global growth is losing momentum.

Pivot (invalidation): 51.10

Our preference Long positions above 51.10 with targets at 52.55 & 53.80 in extension.

Alternative scenario Below 51.10 look for further downside with 50.20 & 49.50 as targets.

Comment The RSI has just landed on its neutrality area at 50% and is turning up.

Pivot (invalidation): 15.6600

Our preference Long positions above 15.6600 with targets at 15.8100 & 15.8700 in extension.

Alternative scenario Below 15.6600 look for further downside with 15.5500 & 15.4800 as targets.

Comment The RSI is mixed with a bullish bias.

Pivot (invalidation): 1291.00

Our preference Long positions above 1291.00 with targets at 1298.50 & 1304.00 in extension.

Alternative scenario Below 1291.00 look for further downside with 1287.00 & 1283.75 as targets.

Comment The RSI is bullish and calls for further advance.

Pivot (invalidation): 2545.00

Our preference Long positions above 2545.00 with targets at 2605.00 & 2636.00 in extension.

Alternative scenario Below 2545.00 look for further downside with 2520.00 & 2473.00 as targets.

Comment The RSI is bullish and calls for further upside.