• GBP/USD refreshed multi-year tops on Wednesday, albeit struggled to sustain above 1.3700 mark.
  • A modest uptick in the US bond yields helped revive the USD demand and prompted some selling.

The GBP/USD pair shot to fresh multi-year tops during the mid-European session, albeit quickly retreated around 50 pips thereafter. The pair was last seen trading just above mid-1.3600s, up 0.25% for the day.

The pair added to the previous day’s positive move and continued scaling higher through the first half of the trading action on Wednesday. The momentum was fueled by some intraday selling around the US dollar and got an additional boost following the release of stronger-than-expected UK CPI figures.

The optimism over the rollout of vaccines for the highly contagious coronavirus disease and hopes for additional US fiscal stimulus measures remained supportive of the prevalent upbeat market mood. This, in turn, was seen as one of the key factors that undermined demand for the safe-haven greenback.

US Treasury Secretary nominee Janet Yellen’s comments on Tuesday further lifted the market expectations for more aggressive fiscal spending under Joe Biden’s presidency. At her confirmation hearing, Yellen urged lawmakers to act big on COVID-19 relief package and not to worry too much about debt burden.

Despite the supporting factors, the GBP/USD pair once again struggled to capitalize on the move beyond the 1.3700 mark amid a modest USD bounce. The likelihood of a larger government borrowing, along with a modest led to a modest uptick in the US Treasury bond yields and extended some support to the USD.

Investors also seemed to have turned cautious ahead of the President-elect Joe Biden’s inaugural ceremony later this Wednesday. Meanwhile, repeated failures to find acceptance above the 1.3700 mark also warrants some caution for bulls and before positioning for any further appreciating move.

In the meantime, market participants now look forward to a scheduled speech by the Bank of England Governor Andrew Bailey. Apart from this, the broader market risk sentiment will influence the USD price dynamics and produce some short-term trading opportunities around the GBP/USD pair.

Technical levels to watch

 

Strategists at Commerzbank suspect the yellow metal has seen a false break of the 1819 uptrend which allows for recovery with the first resistance seen at 1906. 

Key quotes

“Gold traded through the 10-month uptrend at 1819 but did not close below here and we suspect has seen a false break of trend line support. If we are right we should regard 1810 as an interim low and look for the market to again recover.” 

“Near-term rallies will find initial resistance at 1906 the 21st December high ahead of the November and September highs at 1965.84/1973.8. This remains the barrier to the 78.6% retracement at 2006.” 

“Below the 1810 level lies key support, which remains the 1760/1765.61 May high and 50% retracement. We view the market as having based here, and note that this support is further reinforced by the 1781 55-week ma. Below 1760 would leave the market under pressure and attention on the 1670 June low.”

 

  • EUR/USD deflates following an earlier move to 1.2160.
  • The mid-1.2000s offers decent support for the time being.

EUR/USD surpassed the 1.2100 mark on Wednesday, although the bullish impulse run out of gas near 1.2160.

If the recovery picks up extra steam, then the next interim hurdle emerges at the Fibo retracement (of the November-January rally) at 1.2173. Further up, there are no relevant levels until the YTD peaks in the 1.2350 zone.

Further decline is expected to meet initial support in the 1.2050 region, where coincide recent lows and the 55-day SMA. A deeper pullback carries the potential to challenge the psychological support at 1.20 the figure, although a move further south of this level is not favoured in the short-term horizon. Below 1.2000 is located a Fibo level at 1.1976.

On the broader picture, the constructive stance in EUR/USD remains unchanged while above the critical 200-day SMA, today at 1.1614.

Looking at the monthly chart, the (solid) breakout of the 2008-2020 line is a big bullish event and should underpin the continuation of the current trend in the longer run.

EUR/USD daily chart

 

  • DXY regains some composure and reverses the initial weakness.
  • Interim hurdle lines up at the 91.00 neighbourhood.

DXY met buyers in the 90.30 region earlier on Wednesday and now resumes the upside to the 90.50/55 band.

Despite the ongoing rebound, the prospect for the greenback remains tilted to the bearish side. That said, a re-visit of the 90.00 yardstick should not surprise anyone in the short-term horizon. Below this psychological level is located the 2021 lows around 89.20 ahead of the March 2018 low at 88.94.

Immediately to the upside emerges the next target at the recent yearly peaks in the 91.00 region. The 55-day SMA, today ay 91.04, reinforces this resistance. Above this region, the selling pressure is forecast to mitigate somewhat.

The ongoing rebound is seen as corrective only and in the longer run, as long as DXY trades below the 200-day SMA, today at 94.37, the negative view is expected to persist.

DXY daily chart

 

The Bank of Japan will announce its latest decision on monetary policy this Thursday at 03:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of seven major banks. The BoJ is expected to maintain rates on hold at -0.1% while the focus will remain on the yield curve control, which aims to maintain the 10-year JGB yield target at around 0.00%.

Ahead of the event, the USD/JPY pair has been consolidating around the 104.00 figure in the last two weeks, retaining its long-term bearish potential, despite bouncing from a multi-month low of 102.60.

Danske Bank

“We do not expect any policy changes from the Bank of Japan despite a renewed state of emergency in half of the country. In December, funding measures were extended and a policy review was kicked off; the results of which will be released in March. Here the BoJ will look for ways to increase the sustainability of its policies without making it look like a retraction from current easing levels. A widening of the tolerance band could be one way to go along with adjusting its ETF purchases.”

ING

“The worsening covid situation in Japan will no doubt be weighing on the BoJ minds, as will deflation (which may get worse when the December CPI figure is released on Friday).  No fresh easing is expected from the BoJ and instead, speculation is growing that the BoJ will scale back its ETF stock buying programme – given the strength in equities and the BoJ’s substantial ownership of this ETF sector.”

Deutsche Bank

“The BoJ will maintain their policy stance, but they’re likely to downgrade their economic outlook in light of the state of emergency declaration.”

Citibank

“Media reports over the weekend suggest the BoJ may broaden the range for its YCC (yield curve control) at this week’s board meeting. BoJ currently sets the 10yr JGB yield target at 0%, while setting the policy rate at -0.1% and the JGB yields range at ±0.2%. Citi analysts however think it unlikely that the BoJ further widens the trading band of its 10yr JGB yield at this week’s meeting.”

MUFG Bank

“The BoJ meeting is not expected to provide any fireworks, with policy seen left on hold. As the upcoming CPI data will underscore, the BoJ is going backward in regard to its inflation target. The output gap has widened and inflation expectations are drifting lower. The Board would love to be able to flick a switch, spur activity and hopefully drive inflation higher. Alas, there are no easy options. The main focus will be on the Bank’s latest forecasts. The recent imposition of the state of emergency has seen private-sector GDP forecasts slide and we suspect that the BoJ will follow suit, lowering its FY20 projection. The direction of the FY21 projections is more nuanced with a weaker base effect likely offset by the fiscal stimulus that was passed in December.”

DBS Bank

“The BoJ policy meeting should deliver no major surprises tomorrow. Japanese media has speculated that the BOJ is contemplating widening the ±20 bps tolerance band around the 0% yield target (though the current band was not really tested last year).”

Rabobank

“Last month the BoJ launched another review of monetary policy, the results of which are expected in March. Speculation has been rising as to what changes this could bring. One impact is that this week’s regular policy meeting is unlikely to bring any fresh policy changes.”

 

  • USD/CAD witnessed some selling for the second consecutive session on Wednesday.
  • The intraday downfall showed some resilience below the 1.2700 round-figure mark.
  • Neutral oscillators warrant caution for aggressive traders ahead of the BoC decision.

The USD/CAD pair remained under some selling pressure for the second consecutive session on Wednesday and extended this week’s rejection slide from the 1.2800 mark. The mentioned level represents a two-month-old descending trend-line resistance and a subsequent fall below 200-hour SMA might have prompted some follow-through selling.

The intraday slide, however, showed some resilience below the 1.2700 mark, allowing the USD/CAD pair to rebound around 25 pips from daily swing lows. Some repositioning trade ahead of the latest BoC monetary policy decision – due later this Wednesday – seemed to be the only factor that forced investors to lighten their bearish bears.

Meanwhile, neutral technical indicators on hourly/daily charts haven’t been supportive of a firm directional bias and thus, warrant some caution for aggressive traders. Heading into the BoC event risk, any subsequent slide below the 1.2700 mark might find decent support and remain limited near the 1.2670-65 horizontal support.

Sustained weakness below will be seen as a fresh trigger for bearish traders and turn the USD/CAD pair vulnerable to resume its recent well-established bearish trend. The downward trajectory might then drag the major back towards multi-year lows support, around the 1.2630-25 region en-route the 1.2600 round-figure mark.

On the flip side, immediate strong resistance is pegged near the 1.2765 region, above which bulls are likely to make a fresh attempt to conquer the 1.2800 mark. Some follow-through buying will negate any near-term bearish bias, rather prompt some short-covering move and push the USD/CAD pair further beyond monthly swing highs, around the 1.2835 region.

USD/CAD 1-hourly chart

fxsoriginal

Technical levels to watch

 

  • EUR/JPY fades Tuesday’s uptick and returns below 126.00.
  • Further downside could see he 125.00 area re-tested.

The bullish attempt in EUR/JPY has once again lost momentum in the 126.20 region.

The rejection from this area leaves the door open to the resumption of the leg lower and a potential visit to Monday’s YTD lows near 125.00 the figure. Further south emerges the 100-day SMA at 124.75 ahead of the Fibo retracement (of the October-January rally) at 124.55.

Looking at the broader picture, while above the 200-day SMA at 122.80 the outlook for the cross should remain constructive.

EUR/JPY daily chart

 

GBP/USD has hit the highest since 2018 but retreated from the highs. Biden’s first moves as president and UK covid updates may trigger the next rally, Yohay Elam, an Analyst at FXStreet, reports.

Key quotes

“The pound has been supported for long days by Britain’s rapid vaccination campaign, which has reached nearly 7% of the population, ahead of the US and well beyond European countries. Another reason for optimism is that Britain’s coronavirus cases continue falling from their highs.”

“Biden’s inaugural speech and first hours in office may be critical. If he pushes for a faster vaccination campaign and offers other growth-friendly policies, the dollar could continue lower. Conversely, any significant environmental curbs could weigh on sentiment.” 

“Democrats not only take over the White House on Wednesday but also the Senate, with the swearing-in of the winners in Georgia, Raphael Warnock, and Jon Ossof. Comments from moderate Republicans and Democrats – critical to passing legislation – may also rock markets. Support for the relief package would weigh on the dollar.”

“If the break above 1.3711 is confirmed, the next hurdles are 1.3730, 1.3810 and 1.40 – all dating back to 2018. Support awaits at 1.3680, a temporary peak in early January. It is followed by 1.3610, a separator of ranges.”