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Stocks in the US and Europe were once again under pressure as markets are getting nervous with an increasing potential for geopolitical conflict in Ukraine. At the same time, positive manufacturing data from the US helped the dollar advance a bit yesterday. The fact that the dollar is now trading at levels that not so long ago supported the price and that the yields remained unchanged at 1.83% kept the up move rather small. Unemployment claims (286K  vs. 227K expected) and existing home sales (6.18 million vs. 6.42 million expected) we disappointing and thus might have contributed to the sluggishness of the up move. Risk aversion hit the markets with stocks trading lower together with the cyclical currencies AUD and NZD. Cryptocurrencies didn’t stay immune to this wave of selling either. BTCUSD, ETHUSD and LTEUSD, all declined in yesterday’s trading. We’ll cover EURUSD, AUDUSD, NZDUSD and EURNZD in this report. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

The companies releasing earnings on our watchlist today are PG, CSX, ISRG, UNP and NFLX. Look for additional volatility (trading opportunities) in these equity CFDs today. Companies reporting tomorrow: AAL, SLB and TRV.

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EURUSD chart 8h 01 21 1

EURUSD lost some steam after it started to react higher the day before yesterday. The drift lower doesn’t indicate there’d be immediate upside rewards available in this market. Yesterday’s close below the channel low is also a negative factor. It seems that without an external factor pushing the market in one direction or another the market could be drifting back and forth for a period of time. A break above 1.1369 would promise more upside while continued weakness below it indicates there’s either further consolidation or testing of the next key supports at 1.1227 and 1.1284 ahead.

AUDUSD chart 8h 01 21 1

AUDUSD rally failed as we expected. We said yesterday: “The market might have to test levels nearer to the rising support (channel low) before the bulls are ready for the next rally attempt. Now, the pair has traded down to the channel low and, at the time of writing this, reacted higher from it. This could lead to further downside in the AUDUSD and we’d therefore advise those that trade the long side to be more cautious. The nearest key support and resistance levels for the market are 0.7130, 0.7176, 0.7181 (channel low) and 0.7276. A break below the bull channel would be likely to bring the 0.7130 low to play again.

USDNZD chart 8h 01 21 1

NZDUSD bulls gave the pair one more push in yesterday’s trading but weren’t able to take NZDUSD above 0.6811. We said yesterday that “the market needs to break above this level in order to really become bullish again. Below this level, the risk is that the consolidation continues and could turn into a weakness”.  This is pretty much what then happened in the US session yesterday: NZDUSD closed below the channel low and in the Asian session today, the 0.6733 was also penetrated, though not on a closing basis yet. However, the probabilities are now higher for this market to move to the December 2021 low at 0.6702. The 0.6811 remains a key threshold level. NZDUSD needs to push decisively above it in order to become bullish again. The next important NZD related risk event (CPI q/q) is scheduled for 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.

EURNZD chart 8h 01 21

EURNZD is once again trying to close above a key resistance level at 1.6827 the last time the rally attempt failed so it’s going to be interesting to see if the bulls will be able to create a decisive breakout this time. In order for a breakout to be successful, the price needs to close into new highs after which there’s a higher likelihood for the future tests of the violated resistance level to act as a support. A failure to break above the 1.6827 would be likely to move the market back to the 1.6680 – 1.6745 range where the moving averages are at the moment. The nearest short term resistance is at 1.6915 where the bull channel high currently is. 

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 – ECB President Lagarde Speaks
  • CAD – Core Retail Sales m/m
  • CAD – Retail Sales m/m
  • USD – Treasury Sec Yellen Speaks

For more information and details see the TIOmarkets economic calendar here

 Market News & Facts 

  • UK Retail sales -3.7% (-0.6% expected)
  • Canada December CPI y/y 4.8% (4.8% expected)
  • UK December CPI 5.4% y/y (5.2% expected)
  • Empire Fed manufacturing -0.7 (25.0 expected)
  • 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)

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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