• DXY navigates the area of yearly highs beyond the 99.00 mark.
  • Fresh coronavirus fears remain in centre stage on Friday.
  • Advanced Retail Sales, flash U-Mich index next on the docket.

The greenback, when tracked by the US Dollar Index (DXY), stays bid and testing fresh yearly peaks beyond 99.00 the figure at the end of the week.

US Dollar Index looks to data

The index is extending the march north for yet another session on Friday, posting gains in nine out of the last ten sessions and returning to levels last seen in October 2019 above the 99.00 mark.

The dollar kept the buying interest well and sound on Thursday after COVID-19 reported cases ramped up in China, sparking another wave of panic among investors and the subsequent move to the safe haven universe.

Also supporting the buck, inflation figures came in a tad above expectations for the month of January, extending the positive momentum in the domestic fundamentals.

Later in the US data space, advanced Retail Sales for the month of January will be in the limelight seconded in relevance by the preliminary print of the U-Mich index, Industrial and Manufacturing Production, Capacity Utilization and Export/Import Prices. In addition, Cleveland Fed L.Mester (voter, hawkish) will discuss “Payments Modernization”,

What to look for around USD

The index extended the rally to the area above the 99.00 mark, clinching at the same time new 2020 tops. Following a neutral/dovish message from the FOMC at its latest meeting, the upbeat assessment of the economy and a resilient financial system confirmed by the Fed’s semi-annual Monetary Policy Report published last week and “no news” from Powell’s testimonies this week, investors should now keep looking to the performance of US fundamentals and the broader risk appetite trends for direction as well as any fresh developments from the COVID-19. In the meantime, the outlook on the buck remains constructive and propped up by the current ‘wait-and-see’ stance from the Fed vs. the broad-based dovish view from its G10 peers, the ‘good shape’ of the domestic economy, the dollar’s safe haven appeal and its status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the index is gaining 0.03% at 99.13 and a breakout of 99.16 (2020 high Feb.14) would aim for 99.37 (high Sep.3 2019) and finally 99.67 (2019 high Oct.1). On the other hand, initial contention emerges at 98.54 (monthly high Nov.29 2019) seconded by 98.15 (21-day SMA) and then 97.76 (200-day SMA).

  • WTI consolidates recent gains.
  • Oversold RSI conditions, sustained break of short-term SMA favor buyers.
  • 200-day SMA keeps being a tough nut to crack for the bulls.

WTI steps back to $51.72 while heading into the European session on Friday. the oil benchmark crossed 10-day SMA for the first time since early January on Wednesday and has been above that afterward. Also supporting the bullish sentiment is oversold RSI conditions.

As a result, buyers can take aim on January 29 to surrounding $54.38 whereas November 2019 low near $55.00 could challenge the upside then after.

If at all the oil prices remain on the front foot past-$55, a 200-day SMA level around $56.60 will be in the spotlight.

Meanwhile, the black gold’s declines below 10-day SMA level of $50.80 can take rest at the latest lows, also the multi-year low, near $49.40.

WTI daily chart

Trend: Recovery expected

  • GBP/USD registers modest moves amid a lack of fresh catalysts.
  • The pair surged the previous day after a surprise resignation of FinMin Sajid Javid.
  • The new attorney general wants to take back control from the EU-led courts, France pushes for tough UK commitments.

GBP/USD seesaws near 1.3050 ahead of the London open on Friday. In doing so, the cable traders catch a breath after a heavy run-up marked during the previous day.

The reason could be attributed to the UK’s Finance Minister Sajid Javid’s surprise resignation. The Chancellor cited the UK PM Boris Johnson’s push to fire the team as a reason for leaving the post. Following his resignation, Rishi Sunak will lead the team and is known to have the Tory leader’s support due to bias towards further spending.

The UK cabinet’s reshuffle also led to the departure of some of the key diplomats that were mostly identified earlier. However, the incoming Attorney General Suella Braverman has the firm view to “take back control” from an interfering judiciary as noted by The Guardian.

The same will harden the Brexit negotiation at the time when the French President recently pushed for the tougher UK commitment to have “the level playing field.”

Further, the UK PM Johnson is reported to have turned down the US visit again, as noted by The Sun, which in turn makes him a less friendly to the US President Donald Trump. The US leader earlier showed dislike for British favor for China’s Huawei.

Elsewhere, the fears concerning coronavirus are getting weaker and supporting the risk recovery. As a result, the US 10-year treasury yields stay modestly down to 1.61% while stocks in Asia are marking a recovery from Thursday’s declines.

Looking forward, the absence of UK data will push the cable traders to keep eyes on political/Brexit headlines, coupled with coronavirus update. However, the US Retail Sales and Michigan Consumer Sentiment Index can please the momentum traders during the later part of the day.

Technical Analysis

Prices are likely to rise towards 1.3100 with 1.3070 acting as an immediate upside barrier. On the downside, 1.2970, 1.2940 and 1.2900 should be watched during the quote’s pullback.

Citing people familiar with the protracted India- US trade talks, Reuters reports that India has offered to partially open up its poultry and dairy markets in exchange for a limited trade deal when US President Trump’s officially visits the country later this month.

Key Points:

India has offered to allow imports of US chicken legs, turkey and produce such as blueberries and cherries and has also offered to cut tariffs on chicken legs from 100% to 25%. US negotiators want that tariff cut to 10%.

The Modi government is also offering to allow some access to India’s dairy market, but with a 5% tariff and quotas.

New Delhi has also offered to lower its 50% tariffs on very large motorcycles made by Harley-Davidson, a tax that was a particular irritant for Trump, who has labeled India the “tariff king.” The change would be largely symbolic because few such motorcycles are sold in India.

  • USD/INR: Modestly lower below 71.50 with eyes on economic calendar
  • USD/INR struggles to justify mixed catalysts at home amid coronavirus fears.
  • Updates from global rating giants, IMF fails to provide any clear direction to the Indian traders.
  • Indian WPI inflation, US Retail Sales and Consumer Sentiment are in the spotlight.

USD/INR trades near 71.30 as the Indian markets open for Friday’s trading. The quote rose the previous day amid fears of coronavirus while paid a little heed to S&P’s no change in Indian credit rating.

A sudden spurt in coronavirus cases, due to a change in methodology for diagnosis, triggered risk-off on Thursday. The moves are settling since then as the latest numbers Hubei, which declined from Wednesday’s 14,840 to 4,823, signal consolidation.

Also doubting the pair’s upside momentum is comments from S&P. The global rating giant affirmed India’s rating at BBB-/A-3 while keeping the outlook stable on Thursday. That contradicts comments from Moody’s that termed the Reserve Bank of India's (RBI) recent asset recognition norms as credit negative for Indian banks. Further, Fitch recently said that the ASEAN coronavirus risks hinge on duration and policy response.

Additionally, Gerry Rice, communications director of the International Monetary Fund (IMF) also showed concern for the weakness of the Indian economy while advising more ambitious structural and financial sector reforms.

That said, market risk-tone seems to recovery from the previous day’s declines. The US 10-year treasury yields stay mostly unchanged around 1.60% whereas shares in Asia have started posting minor gains.

Traders will now turn to the Indian WPI Inflation data for January, up for publishing at 06:30 GMT, expected 2.92% versus 2.59% prior. Following that, the US Retail Sales and the preliminary reading of Michigan Consumer Sentiment Index will direct market moves. While the US Retail Sales are expected to soften by 0.30% from 0.50% whereas the sentiment gauge could also step back from 9.8 to 99.5.

Technical Analysis

FXStreet Analyst Flavio Tosti holds a bearish bias while citing the bearish flag pattern:

USD/INR broke below a bear flag pattern challenged the 71.20 support level and then retested the 71.60 resistance. Since then, USD/INR entred e tight range while remaining weak below the 71.60/72.00 resistance zone. However, a daily close above the 72.00 figure could invalidate the bearish scenario and generate further upside towards the 72.40 level.

German GDP overview

German gross domestic product (GDP) due at 07:00 GMT is expected to show the economy expanded 0.1% quarter-on-quarter in the final three months of 2019, having registered a similar growth rate in the third quarter. The annualized growth rate, however, is seen decelerating to 0.2% from 1.0%.

Lead indicators point to weakness

Both Factory Orders and Industrial Production registered an annualized decline of 6.68% and 8.7%, respectively, in December, signaling a worsening of the recession in the manufacturing sector. Meanwhile, exports rose just 0.1% in December, missing the forecast for a 0.5% rise, after having dropped by 2.2% in November.

If the leading indicators are a guide, Germany's export-driven economy may have contracted in the final quarter of 2019.

  • German Gross Domestic Product Fourth Quarter Preview: Third time is not a recession charm

Impact on EUR/USD

EUR/USD is looking south, having breached key support at 1.0879 (Oct. 1 low) earlier this week. The pair hit a 34-month low of 1.0827 in Asia and is trading at 1.0831 at press time. The sentiment looks quite bearish as the current weekly candle is carrying little or no shadows similar to the last week's big red "marubozu" candle.

So, the currency pair could easily slide below 1.08 if the German data prints below estimates, bolstering recession fears and forcing markets to price in higher odds of a European Central Bank (ECB) rate cut later this year.

Money markets are currently pricing about six basis points of rate cut by the end of 2020, versus a zero probability seen a month earlier, according to Bloomberg.

If the data betters estimates, a corrective bounce in EUR/USD may be seen, although the technical bias will remain bearish as long as the spot is holding below the descending 10-day average at 1.0940.

Technical levels

South Korean Finance Minister Hong Nam-ki said in a policy meeting in Seoul that the government will deploy all available policy measures to boost domestic investment to combat the negative coronavirus risks on the economy.

Key Quotes:

Market volatility may increase again depending on pace of coronavirus spread.

To minimise impact on economy from coronavirus spread.

Coronavirus spread has big direct, indirect impact on local economy.

Ready to deploy contingency plans to calm financial market volatility if needed.

Will take stern market stability measures swiftly if needed.

Feels sluggishness of domestic demand excessive now compared to 2015 when S. Korea was facing MERS.

Market Implications:

The South Korean policymakers are seen reaching out on the wires this Friday to calm the investors amid growing coronavirus risks.

However, Yonhap cited the Korea Centers for Disease Control and Prevention (KCDC), saying that South Korea on Friday reported no new novel coronavirus case for the third consecutive day.

On the positive developments around the coronavirus outbreak and government’s readiness to deploy additional measures to boost the domestic economy, the Korean won (KRW) has bounced-off three-day lows vs. the greenback.

USD/KRW now trades 0.08% lower at 1,182.62, having pulled back from a multi-day top reached at 1,185.40 earlier today.

  • USD/JPY consolidates the recent losses.
  • A downward sloping trend line since January 17 guards immediate upside.
  • Technical indicators suggest bearish momentum holding strong despite the pullback.

USD/JPY rises to 109.86, following the uptick to an intra-day high of 109.91, during the early Friday. In doing so, the quote recovers the previous day’s losses while taking a U-turn from 50-bar SMA.

While the current upside rush highlights a monthly falling trend line resistance, at 110.12, the quote’s further advances are likely to be tamed considering bearish MACD and normal RSI.

In a case buyers manage to cross 110.12, January month high near 110.30 holds the key to pair’s run-up towards May 2019 top surrounding 110.70.

On the downside, 50-bar SMA of 109.73 and a horizontal area comprising 38.2% Fibonacci retracement of January month upside near 109.30 can restrict the quote’s short-term declines.

During the pair’s declines below 109.30, 108.70/65 becomes important as it includes an ascending trend line from January month low and 61.8% Fibonacci retracement level.

USD/JPY four-hour chart

Trend: Pullback expected