Tuesday saw a reversal of much of Monday’s moves on the premise that ‘no news is good news’.  While Wednesday’s focus was on the FOMC rate announcement, the day began with traders still focused on coronavirus developments. This began with President Trump announcing that US airlines would potentially cease flying to China due to the ongoing issues. In the UK, British Airways announced that they would also temporarily suspend all flights to China. While Chinese equity markets remained closed for the New Year, the Hang Seng did re-open, dropping more 2.8% on the day. For FX, the day would begin with a slow unwind of Tuesday’s moves. EURJPY would dip back to 120.00 and USDJPY to 109. EURUSD would slowly drift from 1.1025 to 1.0995.

The price action this week has been inconclusive to say the least. The markets are pushing both sides, trying to find the path of least resistance. Maybe the FOMC rate announcement would get us going. Before that, though we had the Wall Street open and on the back of stellar earnings from Apple, equities got off to a solid start, with the DJ up 180 points. Then came US Pending Home Sales for December which saw a record low number as supply dried up. Maybe not the best reason to sell equities, but shortly thereafter stocks drop with the DJ barely remaining in positive territory, while both the S&P and Nasdaq turned red. But that was as far as we could go and before Europe headed for the doors, the DJ was back up 140 points. Despite the equity moves, FX decided to wait things out until the FOMC announcement at 2pm EST. EURUSD continued to trade between 1.0995 and 1.1010 and USDJPY between 108.95 and 109.15. The Fed announcement comes and goes with rates unchanged as expected. The statement reaffirms the Fed’s commitment to higher inflation. Nothing new there.  The press conference can often produce more volatility than the actual announcement. Today would be no exception although it was hardly fireworks. One dovish comment about bill purchases had the USD slipping lower with EURUSD briefly back up to 1.1020 and USDJPY down to 109.00. XAU would benefit rallying from 1,568 to 1,577. And equities once again head lower even with Apple trading at record highs. By the Wall Street close, the DJ and Nasdaq are up by less than 0.1%. The S&P marginally lower. If you were looking for some conclusive direction, you didn’t get it. Familiar ranges continue, but maybe a break is around the corner (he said hopefully). Today it will be all eyes on the Bank of England rate decision.

As per yesterday’s commentary, XAU did indeed get some constructive price action, so let’s see if that continues. For today, a very simple look at the current set up for EURUSD. For the past few sessions we have been bouncing around the 1.1000 level and as you can see from the hourly chart, it’s the November low at 1.0980 which has caught trader’s eyes. Will we test it? Will it hold? Or will we just drift back higher? Plenty of ways to play it, so find the one that suits you best. If we do start to squeeze higher, interim resistance is at 1.1040 followed by the 1.1065-70 area which acted as support stretching back to early December 2019.

David Hannigan
Author

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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