New York Forex Report: Dollar Bounce, Another Deadcat?

New York Forex Report: Dollar Bounce, Another Deadcat?

New York Forex Report: The USD is showing signs of renewed strength against most of the G10 currencies and the distribution of returns is suggestive of mild risk aversion as we enter the New York session with outperformance in JPY and gold alongside underperformance in AUD. CAD is soft and remains vulnerable to the broader tone ahead of Thursday’s speech from BoC SDG Wilkins. EUR has failed to benefit from the successful conclusion of German coalition talks and has softened back toward the lower end of its multi-week range, drifting toward levels last seen during Mnuchin’s comments at Davos. U.S. shutdown risk has been averted and lawmakers have passed a measure to keep the government funded through late March. Global equity indices have shown some signs of stabilization however U.S. equity futures appear weak and developed country bond yields are lower. Gold is up modestly, oil is soft, and copper is weak. Thursday’s New York calendar is limited to Canada’s building permits, and U.S. consumer credit, with Fedspeak from Dudley and Evans. The RBNZ is expected to maintain a 1.75% policy rate tonight.

NORTH AMERICA US trade deficit widened more than expected to $53.1bn in December as the 2.5% MoM increase in imports outpaced exports growth of 1.8% MoM. Deficit has widened for a 4th straight month now and would exert a drag on overall GDP growth in 4Q as already evident in the advance estimate of 4Q GDP print released two weeks ago.

EUROPE In line with the fall in retail sales, EU PMI retail reported a dip to 50.8 in January, amid broad-based declines in Germany, France and Italy. This should raise concerns of continued subdued sales going forward. Potential headlines from German political coalition talks on Wednesday may grant the EUR some support if concrete progress is made

ASIA RBA left its cash target rate unchanged at 1.5% as widely expected and we noticed no change in its tone that could potentially signal any rate move is on the cards. RBA Governor Lowe said “the low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual”. We maintain our view for a pause in RBA rates this year

EURUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – As 1.2290 survives on a closing basis, 1.2635 descending trendline from all time highs becomes the upside magnet. Near term resistance sited at 1.2440 failure below 1.23 opens a test of pivotal 1.2165

1-3 Week View – As 1.2130 now acts as support expect a test of 1.2635 as the next upside objective. Weekly close below 1.19 neutralises bullish objectives opening a test of 1.14.
Retail Sentiment: Bearish
Trading Take-away: Long

GBPUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Broader 1.39 – 1.4350 bullish consolidation pattern, a daily closing breach of 1.39 opens 1.3710, a breach of range resistance targets 1.45.

1-3 Week View – As 1.3836 supports 1.45 becomes the next upside objective, only a close back below 1.34 would jeopardise the bullish advance.
Retail Sentiment: Neutral
Trading Take-away: Neutral

USDJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – The breach of of 109.50 opened a retest of 108.28 bids came in 108.44 as 109.50/70 contains upside correction expect a retest of 108.44, over 110.30 opens 111

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Bullish
Trading Take-away: Short

EURJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – As pivotal 133.30 support test survives, there is potential for a platform to develop to test 141, as 136.30 supports 137.63 is the near term upside hurdle

1-3 Week View – 136.10 is the principle upside objective , rotation within the broader range persists breach of 132.20 sets a retest of 131.50, a closing breach of 131 concerns the bullish consolidation bias.
Retail Sentiment: Bearish
Trading Take-away: Sidelines

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