BOE Push Back on Negative Rates, Dollar Bears Return
- GBP/USD was the strongest major pair after BOE’s (Bank of England) governor Bailey pushed back on negative interest rates and said COVID had impacted inflation less than expected. The US dollar was the weakest major overnight, which saw the US dollar index produce a bearish engulfing candle by the close and finish just above 90. The weaker dollar also supported commodities, helping oil prices hit their highest levels since February 2020.
- The Fed’s Esther George reiterated that the Fed won’t react if inflation moves above 2%, and that the 3.5% unemployment would be a marker to help guide their policy. Core CPI currently sits at 1.6% YoY and December’s inflation data is released overnight.
- NFIB’s small business index for the US fell to a 7-month low in December. At 95.9 it shows more respondents to the survey were pessimistic and, with small business accounting for around 50% of the nation’s private workforce it can provide a decent barometer of business sentiment.
- Republican Leader Mitch McConnel has told the New York Times that he is pleased Democrats have moved forward to impeach Trump, and that he believes that Trump has indeed committed an impeachable offence. This is an interesting development which could suggest McConnel does want the Republican led Senate to impeach Trump, a move which would prevent him running for office in future.
Today’s Calendar Events (Times are GMT+11 Sydney)
We could be in for a quiet Asian and European session, given the lack of economic data scheduled today. US inflation data would usually be an important event but, given the Fed will not react if inflation overshoots their 2% target, and CPI currently sits at 1.6%, it has practically become a non-event. Unless of course, inflation were to move significantly lower.
USD/JPY: Reversal at LT Trendline
USD/JPY has produced a bearish 2-bar reversal at a long-term (LT) bearish trendline. The trendline is projected from the March 2020 swing high and produced a 336-pip decline when it was last tested in May.
Note how the yesterday’s session was a bearish engulfing candle which closed beneath the 50-day eMA.
- The bias remains bearish beneath the bearish trendline and / or the 104.40 high.
- A clear break beneath yesterday’s low assumes bearish continuation.
- 103 (round number) is the initial target but, given the bearish structure of price action we could also see a re-test and break beneath 102.57.
NZD/JPY: 74.58 Remains Pivotal
NZD/JPY remains in an established uptrend on the daily and weekly charts. After hitting its highest level since April 2019 last week, prices have retraced and respected a bullish trendline on the four-hour chart.
The 50-period eMA is providing dynamic support and prices remain above it. A two-bar reversal (bullish piercing line) suggests a swing low has occurred at 74.58 and momentum is now beginning to turn higher, in line with the bullish trend. Prices are also back above the weekly pivot points to paint a bullish bias.
That 74.58 has been respected as support and was previously resistance makes it a pivotal level, which can be used to aid with risk management, or switch to a bearish bias should prices break beneath it.
- The bias remains bullish above the trendline and / or 74.58 pivotal support.
- Initial target is the highs around 75.58 but the weekly R1 can also be used, which sits around 75.95.
- A break below 74.58 suggests a counter-trend move is underway which may be appealing to bears.
EUR/NZD: Bearish Inside Bar Below Resistance
We highlighted this pair last week after it broke beneath 1.6950 support. Since then prices have made several failed attempt to break (and hold) above resistance, and the bias remains for a move towards 1.6785 support.
Given the structure appears to be in wave five of a five-wave decline (impulsive move lower), we are now looking for bearish momentum to push prices down and complete the final leg lower.
- The bias remains bearish beneath Monday’s high.
- A break beneath yesterday’s low assumes bearish continuation.
- If traders are confident the weekly high was seen on Monday, bears could consider selling into minor rallies within yesterday’s inside bar with a stop above Monday’s high. This can help increase the potential reward to risk ratio.