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FOMC Recap: Dollar Rallies, Stocks Unenthused as Powell Holds the Line

 

PATH OF THE ECONOMY CONTINUES TO DEPEND SIGNIFICANTLY ON THE VIRUS

REAL UNEMPLOYMENT RATE CLOSER TO 10%

VERY UNLIKELY THAT WE’LL SEE TROUBLING INFLATION

SEVERAL DEVELOPMENTS HAVE SIGNALLED A BETTER OUTLOOK LATER IN 2021

MONETARY POLICY IS PLAYING A KEY ROLE IN SUPPORTING ECONOMY

LIKELY TO TAKE SOME TIME FOR SUBSTANTIAL FURTHER PROGRESS TO BE ACHIEVED

POLICY TO REMAIN ACCOMMODATIVE UNTIL GOALS REACHED

TOO EARLY TO BE TALKING ABOUT DATES ON TAPERING

PATH AHEAD REMAINS HIGHY UNCERTAIN

POWELL, ASKED ABOUT GAMESTOP, DECLINES TO COMMENT

 

Market reaction

 

Despite the Fed’s generally dovish, steady-as-she-goes tone, US indices have deepened their selloff, with major indices trading lower by 2-3% ahead of the close. Both gold and oil are also ticking lower along with the yield on the benchmark 10-year treasury bond (-2bps to 1.02%). In FX, the US dollar has recovered off its midday lows to resume the uptrend from today’s Asian and European sessions. With little in the way of new information from Powell and Company, traders may look at this near-term rally in the greenback as a selling opportunity until the longer-term 50- and 100-day EMAs start to turn.

 

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so USD had bounce, seems this study wants people sell into rally?? :unsure:

 

 

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US Dollar

The higher low is still alive with the recent hold near 90, and the bottoming formation remains a potential scenario. The Dollar is testing its neckline and the 50 Day MA for the second straight day.

 

AUD/USD bounced 85 pips! First resistance is at 0.7680 and then the top trendline of the channel near 0.7750. If price fails below 0.7680, intraday support is at 0.7640 before today’s low of 0.7621.

 

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US Dollar

Despite risky assets rallying this morning, the US Dollar is higher and close to a breaking out from a clear bottoming formation.

 

A daily chart of the DXY shows that price broke out of a descending wedge back on January 8th, and so far, has held the 161.8% Fibonacci extension from the September 1st, 2020 lows to the September 25th, 2020 highs. It also has held the support zone between 89.00 and 91.00, dating back to January 2018. The US Dollar Index appears to be desperately trying to break above 91.00. I move above 91.24 would clear the way for a move to 91.75 and 92.01. If price fails at 91, a move to trendline support near 90.50 and horizontal support near 90.05 is possible.

 

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keep eye on DXY. it might trigger something bigger than we thinks. :unsure:

 

 

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The DXY has been on a tear lately, moving from 90.00 to 91.50 since January 22nd. Today alone the US Dollar index moved from 91.09 up to 91.485. The DXY hit resistance just as the BOE announced it was leaving rates unchanged and didn’t intend to signal that they were going to raise rates in the future. As a result, GBP screamed higher. The DXY took the brunt of the GBP move and pulled back. Intraday support is now at 91.24 and 90.98. Bulls will be looking to fade the pullback in DXY and buy near these levels. Strong horizontal resistance is above at the day’s’ highs of 91.485.

 

 

Conversely, Gold (XAU/USD) has been moving lower since the beginning of the year. Gold and the DXY typically move inversely to each other. Today was no exception. As DXY moved higher, gold moved lower and is currently testing near-term trendline support at 1808. The next level of support is 1802.69, the lows of January 17th and the 1800 psychological round number. Resistance isn’t until 1830. If price does bounce intraday, expect Gold bears to be selling near those levels. Gold bulls will be buying near the confluence of support between 1800 and 1810. Note that on a 240-minute timeframe, the RSI is oversold , which may indicate the precious metal is ready for a bounce.

 

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silver and gold both went down last night, but seems silver has been well supported with recent short squeeze. but gold seems lost bit of shine as it dropped below usd1800/once [closed at usd 1793]

 

keep eye on DXY , the beast seems want to run up!! from TA point of view !!

 

 

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A weak NFP report and increased odds that Biden's stimulus package is to be rolled out later this month propelled equities to new highs and slammed the dollar on Friday.

 

Sharp reversal on the dollar

Weak payrolls data on Friday and stronger equities saw the dollar give back most of Thursday’s gain. The US dollar index (DXY) posted a bearish outside day and fall back towards 91.04 support, and a break beneath this key support level signals further losses. Despite the dollar weakness, USD/CNH broke a bearish streak to close higher for the first week in 9 weeks.

 

Elsewhere, bullish reversal candles have formed on the daily chart of several forex pairs; bullish engulfing candles (and 2-bar reversals) on EUR/USD and AUD/USD, and bearish engulfing candles on USD/CAD, USD/CHF, MXN/USD and DXY (US dollar index). Also take note of the bearish hammer on USD/JPY around the 200-day eMA, which suggests there may be some further downside before its bullish trend resumes. GBP/USD also closed the week just beneath cycle highs after rallying above Thursday’s bullish hammer. A break above 1.3758 assumes bullish continuation.

 

Price action on AUD/USD’s daily chart suggests correction from the 0.7820 high may be complete. The pair is clear in an established uptrend, and it has provided a gentle correction these past few weeks. The 50-day eMA is holding as support, and a wide bodied doji (spinning top) candle formed on Tuesday to show a hesitancy to push lower, before producing two small ranging candles. More importantly, a bullish engulfing candle formed on Friday which closed at the highs, otherwise known as a bullish closing Marabuzo candle. The stochastic oscillator also generate a buy signal.

 

Bull could seek to enter upon retracements within Friday’s range. The 50% retracement of Friday’s open-close range (the Marabuzo line) may provide potential support and can be used to fine tune an entry point, or risk management.

Initial target is the bearish outside candle high at 0.7764 and the 0.7820 high.

A break beneath 0.7558 invalidates the bullish bias.

Take note that the 200-week eMA is around 0.7870, just below the psychological round number of 0.8000 which will probably provide solid resistance

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it can turn with snap of finger these days, please be sure with stops in place!! :devilsmiley:

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The biggest event of the year for China begins on February 12th, the Chinese Lunar New Year. This year’s animal sign is the ox. This is a time when many workers receive seven days off, and therefore, millions of people travel to visit friends and relatives all over China. The New Year results in billions in spending and is a huge boost for national and local economies. In 2020, Chinese officials were trying to contain the early stages of the coronavirus and dissuading people from traveling. The government canceled many large-scale celebrations as Wuhan and surrounding areas were already on partial lockdown, though many were still able to travel.

 

This year will be different.

 

This year will be much more subdued. Once again, all largescale celebrations have been canceled and restrictions have been put in place to significantly reduce travel. Many factories are remaining open over the holiday, with some increasing pay to incentivize people not to travel. This will help reduce travel and therefore, help contain the spread of the coronavirus. In addition, it will help increase production, which had been resilient since the spring, however, has faltered as of late. January’s Manufacturing PMI had slowed in January from 51.9 in December to 51.3. Non-manufacturing PMI was only 52.4 in January vs 55.7 in December. One area this year’s Chinese New Year won’t help is retail sales. December’s retail sales were only 4.6% (YoY) vs 5.0% in November. The lack of travel over the holidays will only reduce these numbers further. In addition, both headline and core CPI for January (YoY) were -0.3%. Although keeping the factories open will help industrial metal prices remain strong, such as copper and iron ore, headline CPI may not fare well.

 

USD/CNH has been in an orderly down trending channel since May 2020 and put in a low on January 5th at 6.4116. Price then bounced to the top of the channel and traded sideways, moving above the top trendline of the channel January 22nd to a near-term high of 6.5150. On Wednesday, price retested the lows from January 5th and bounced. Since February 5th, price has been moving in a descending channel and bounced off the previous lows and out of the wedge. Bulls will be looking to buy pullbacks to the lows near 6.4116 and target a 100% retracement of the wedge, near 6.4878. Horizontal resistance above is at 6.4377. Above there is a confluence of resistance at the 50% retracement level from the January 27th highs to recent lows, as well as horizontal resistance, near 6.4637. First support is back at Wednesdays lows near 6.4176, then the January 5th lows near 6.4116. If price breaks lower from there, the next support level isn’t until 6.3825, which is support from June 2018.

 

Things will be different this year in China surrounding the Chinese New Year. However, one thing for certain is that volume will slow dramatically during Asian hours over the holiday. Be careful trading over the next week during the holidays, as there may be some sporadic moves on light volume as some traders try and take advantage of the illiquidity.

 

For those of you celebrating, Happy New Year!

 

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some of the market's volume will be thin.

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Bears returned to keep USD under pressure last week ahead of the 3-day weekend in the US. The US dollar index (DXY) fell further away from its 20-week eMA and closed beneath its 10-week eMA to create a two-week bearish reversal pattern. USD/CNH closed to its lowest level since June 2018 and all majors took advantage of the dollar’s doldrums.

 

Whilst we expect the dollar to remain under pressure this week, Monday could be off to a slow start as both the US and China have public holidays which means key markets across Asia and North America will be closed. Yet in the Asian session we have an important GDP print from Japan which could impact BOJ's (Bank of Japan's) monetary policy decision in March, as reports surfaced they may use the meeting to signal tweaks in their policy. A weak GDP print will all but confirm this expectation.

 

The Australian dollar was the strongest performer last week and closed to a 2-week high. Bullish momentum saw prices accelerate away from its 10-week eMA and now looks set to re-test the 0.7820 high. However, keep in mind the 200-month eMA resides at 0.7877 and the psychological level of 0.8000 sits just 150 pips above Friday’s close.

 

The British pound was also a strong performer and closed near its 33-month high. A bullish engulfing candle formed on Friday and used its 10-day eMA as a springboard, therefore a break above last week’s high assumes bullish continuation.

 

Commodities also took advantage of the weaker dollar with most most major commodities closing higher. Although it was platinum which stole the show with an impressive 11.5% rally during its most bullish week since March. Closing at its highest level in 6-years, the next major resistance is around 1300, a level we now expect to break after an initial period of consolidation or a minor retracement.

 

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still thin volume on the market.

 

 

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Recent speakers from the BOE have been continuing to push the theme that they do not intend to move interest rates into negative territory. The latest speaker was BOE Deputy Governor Ramsden who noted that the bond buying program remains the most immediate economic stimulus option. He also said that negative rates represent contingency planning. These comments come after the BOE meeting on February 4th, in which Governor Bailey indicated the central bank did not mean to imply the BOE would use negative rates, just that banks should prepare for it.

 

GBP/USD has been moving higher since the BOE meeting, and today, the pair is nearing the psychological 1.4000, trading as high as 1.3985. A close today above 1.3900 would be bullish for the pair as will have closed above the upward sloping trendline on the top of the channel and wedge the pair has been in since mid-September and mid-December respectively.

 

watch for GBP/USD to pull back in the event the 1.4000 is reached. The pair has put in 3 higher highs while the RSI has put in 3 lower highs, and indication of a potential reversal.

 

First support is the bottom upward sloping channel and today’s lows near 1.3853. Next support level is horizontal support near 1.3754 and then the upward sloping trendline of the channel near 1.3570, which also confluences with the February 4th lows.

 

Immediate resistance is the psychological round number at 1.4000. The confluence of the top trendline on the short-term channel and the 161.8% Fibonacci extension from the February 15th highs to yesterday’s lows, near 1.4022, is the next resistance level. Then, horizontal resistance level is near 1.4120 dating back to April 2018 (daily chart)

 

As BOE members continue to talk about NOT using negative rates as part of monetary policy, GBP/USD has gone bid. However, if inflation expectations continue to grow in the US, and the US Dollar moves higher, watch for the possibility of GBP/USD pulling back. Until then, 1.4000 remains the next level to watch!

 

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