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The rally in USD that started on Friday and got a boost from the yields running higher continued yesterday. As the US celebrated Martin Luther King day there was no new major news that would have moved the dollar so traders took their cues from technicals and from what happened with the yields on Friday. The rally in greenback pushed EURUSD to a key support level and NZDUSD towards the rising channel lows. In this report, we take a look at EURUSD, GBPUSD and NZDUSD. The next main risk events are the publication of the ZEW economic sentiment reports for Germany and the Eurozone and the Empire State Manufacturing Index from the US. UK inflation data is released at 7 am GMT tomorrow. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.


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EURUSD chart 8h 01 18 1

EURUSD moved lower as the USD index (DXA) rallied further. The dollar rally started on Friday at a key price level we identified (here) and was strengthened by the 10-year yield jumping from 1.70% to 1.78%.  EURUSD now has reached a key support level at 1.1382 and bounced a bit. The next key levels technically are the support at 1.1360 and the 1.1310 – 1.1333 area (bull channel low and the 50% retracement level). Look for price action confirmation (bullish candle patterns) to justify long trades. A break below the channel low would turn the market bearish.

GBPUSD chart 8h 01 18

GBPUSD kept on drifting lower yesterday and moved to the 1.3603 – 1.3625 support range. The pair has rallied without significant retracements from the time the BOE hiked the rates and now the fact that the UK as PM Boris Johnson might have to resign has together with the USD rally caused GBPUSD to retrace almost 1%. Yesterday’s analysis on Cable is still valid. 

Technically GBPUSD is still in an uptrend but there have been no significant corrections over the last four weeks. This increases the probability of a correction taking place. The nearest key support and resistance levels for the near term are 1.3603 and 1.3748. If we now get a lower reactionary high below 1.3748 it’s likely that the market will test the 1.3603 – 1.3625 range. If it’s not defended by the bulls the next key price level after this is the 61.8% Fibonacci retracement at 1.3522. This is where is we also have the 20-day SMA and a historically significant price level at 1.3513 in the proximity of the level. If the bulls find the strength to push the market above the most recent reactionary high the next key price level is at 1.3815.

NZDUSD chart 8h 01 18

NZDUSD has stayed under pressure for the same reasons we referred to yesterday. NZDUSD drifted lower and is now trading near to the rising trend channel low. This is where we’d expect the buyers to come in if they are committed to this market. We look for price action confirmation above 0.6733 to go long but If the 0.6733 support is violated, it looks likely that the 0.6702 low gets tested again.  The next time we have important NZD related news is on January 26th. Until then traders are likely to focus on risk sentiment and the expectations for the Fed policy and NZDUSD technicals. The nearest key price levels for NZDUSD are 0.6702, 0.6733, 0.6787 and 0.6890.

Macro Drivers for the USD As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The Federal ReserveFed has started tapering and expects it to end in the summer of 2022. The central bank was forced to change its views on inflation being transitional inflation traders expect the first hike in June 2022 (the probability of a hike is 80.9% at the time of writing this).
StimulusThe US lawmakers have authorised approximately five trillion dollars of economic stimulus since the beginning of the pandemic. Now, US Congress has passed a $1.2 trillion infrastructure spending plan.
YieldsIn Q3 and Q4 2021 the benchmark 10-year US Treasury yield ranged between 1.1720% and 1.6830%. The hottest inflation readings since 1982 have pushed the 10 yr. yield higher as bonds have been selling off.
EmploymentThe December non-farm payrolls increased by 199K instead of 400K expected by the analyst consensus while the unemployment rate was a positive surprise at 3.9% (4.1% expected). Average hourly earnings came in at 0.6% (0.4% expected) moving the annual rate to 4.7% (4.2% expected).
InflationThe annual headline inflation reading for December at 7% (6.8% previous) is the highest CPI print in almost 40 years. The core CPI (all items less food and energy) moved to 5.5 per cent y/y (4.9% previous) This was the biggest annual increase in CPI since 1982.

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 The Next Main Risk Events

  • EUR – ZEW Economic Sentiment
  • EUR – German ZEW Economic Sentiment
  • USD – Empire State Manufacturing Index
  • GBP – CPI y/y and CPI m/m
  • CAD – CPI m/m
  • CAD – Common, Median and Trimmed CPI y/y
  • GBP – BOE Gov Bailey Speaks
  • AUD –  Employment Change
  • AUD – Unemployment Rate

For more information and details see the TIOmarkets economic calendar here

 Market News & Facts 

  • BOJ leaves monetary policy unchanged
  • New Zealand business confidence -28% (-11% previous)
  • China GDP for Q4 2021 1.6% q/q (4.0% y/y)
  • US December retail sales -1.9% (0.0% expected)
  • ECB Lagarde: monetary accommodation needed still
  • US GDP growth expected to be in 3% – 4% range
  • Fed’s Clarida: Inflation will be transitory
  • Fed’s Bullard: Four rate hikes in 2022 needed
  • Fed’s Beige Book: Supply constraints slowing growth
  • China December CPI +1.5% y/y (1.8% expected) 
  • World Bank cuts global GDP forecast to 4.1% (4.3% previous)
  • US December non-farm payrolls 199K (400K expected)
  • Canada December employment change 54.7K (24.5K expected)
  • ADP Employment Change 807K (405K expected)
  • US unemployment claims 207 (199k expected)

Trade Safe!

Janne Muta
Chief Market Analyst

Open a VIP Black account now at TIOmarkets.com. We want you to be able to exploit trading opportunities in financial markets with 0 commission and tight spreads. Take advantage of the best trading account in the industry: Tiomarkets VIP Black. For more details on this truly exceptional offering see here. For more analysis and commentary, visit our YouTube channel where you can find market commentary videos to support your learning and growth as a trader. 

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