07-Jan-2021

1) Dollar Retreats in Late NY on Political Tension in Washington
2) GBP/USD: Break below Mid-1.3500s to Pave the Way for Further Weakness
3) EUR/USD: Bulls Could Aim To Reclaim 1.2400 Mark amid US Stimulus Hopes

1) Dollar Retreats in Late NY on Political Tension in Washington

The greenback rebounded strongly in Europe and early New York on anticipation that the U.S. Democrats will win in the U.S. Senate election in Georgia, which suggests a larger stimulus package could be in place after initially falling to fresh multi-year lows in Asia. Later, USD weakened in late New York due to violent protests in Washington.

Reuters reported the U.S. Capitol was put on lockdown on Wednesday as crowds protesting President-elect Joe Biden’s victory breached security barricades while Congress was debating the certification of his electoral win over President Donald Trump, according to Reuters eyewitnesses. The Senate and the House, which were weighing objections to Biden’s victory, abruptly and unexpectedly recessed.

On the data front, Reuters reported U.S. private payrolls decreased by 123,000 jobs last month, the ADP National Employment Report showed on Wednesday. That was the first decline in private payrolls since April. Data for November was revised slightly lower to show 304,000 jobs added instead of the initially reported 307,000. Economists polled by Reuters had forecast private payrolls would rise by 88,000 in December.

Versus the Japanese yen, although the dollar briefly fell to a fresh 9-1/2 month low at 102.60 at Asian open, renewed buying interest emerged and the pair rose to 102.86, then later rallied to session highs of 103.44 in New York on USD’s broad-based strength before retreating sharply to 102.95 near New York closing on political tension in Washington.

Reuters reported the Federal Reserve was nearly unanimous in its decision last month to leave its bond-buying program unchanged but left a wide berth for officials to decide in the future if and when changes should be made, according to minutes of the U.S. central bank’s December policy meeting. “All participants” agreed the Fed should commit to leaving the program in place until there was “substantial further progress” towards its economic goals, and “nearly all” favored keeping the current mix of assets purchased intact rather than focusing, for example, on longer-term Treasury bonds as some analysts had advocated, said the minutes, which were released on Wednesday. But in terms of how to judge when “substantial further progress” had been achieved, “participants commented that this judgment would be broad, qualitative, and not based on specific numerical criteria or thresholds.”

Although the single currency rose briefly above last Wednesday’s 1.2309 high to 1.2325 at Asian open, the price fell to 1.2276 on profit-taking. However, the pair then rallied to a fresh 2-1/2 year peak of 1.2349 in Europe on cross-buying in euro but only to erased intra-day gains and tumbled to 1.2267 in New York on renewed USD’s strength and then rebounded strongly to 1.2339 in late New York.

The British pound went through a volatile session. Cable initially fell from 1.3647 at Asian open to 1.3592 before rising in tandem with euro to session highs of 1.3671 in Europe on USD’s weakness. However, the price then dropped to 1.3540 in New York due to renewed buying interest in the greenback as well as concern over new lockdown measures. The pair then rebounded to 1.3626 near New York close on USD’s weakness.

In other news, Reuters reported British Prime Minister Boris Johnson warned parliament on Wednesday that ending England’s latest lockdown would require a “gradual unwrapping” over time, pledging that schools would be the “very first things to reopen”.      Addressing parliament before lawmakers vote on the measures introduced earlier this week, Johnson defended his decision to implement the new lockdown at the time he did, saying the new, more contagious, coronavirus variant offered little choice.       He said the legislation would run until March 31 “not because we expect the full national lockdown to continue until then, but to allow a steady, controlled and evidence-led move down through the tiers on a regional basis”.

2) GBP/USD: Break below Mid-1.3500s to Pave the Way for Further Weakness

The GBP/USD pair had some good two-way price swings on Wednesday and was influenced by a combination of diverging forces. The emergence of some fresh selling around the US dollar assisted the pair to gain some positive traction and climb to an intraday high level of 1.3670 region. A Democratic victory in the crucial US Senate runoff elections in the state of Georgia boosted hopes for more US fiscal stimulus measures, which, in turn, dragged the USD to its lowest level in nearly three years.

However, investors remain worried about the imposition a third national lockdown in the UK until mid-February to curb an unprecedented level of COVID-19 infection. The move is predicted to slow the economic recovery and force the Bank of England to ease its monetary policy further. This, along with a downward revision of the UK Services PMI for December and a modest intraday USD rebound, kept a lid on any runaway rally for the major, rather prompted some fresh selling at higher levels.

Expectations of larger government borrowing pushed the benchmark 10-year US Treasury yield beyond the 1.0% mark for the first time since March. Apart from this, concerns about the prospect for tighter regulations on technology mega-caps led to a selloff in Nasdaq futures and provided some respite to the safe-haven USD. Meanwhile, the attempted USD recovery quickly ran out of steam after the ADP report showed that the US private sector unexpectedly decreased by 123K in December.

Separately, the minutes from the Fed’s meeting last month revealed unanimous support to keep the bond-buying program unchanged and that some members are in favor of expanding stimulus. The minutes did little to impress the USD bulls and allowed the pair to rebound around 70 pips from weekly lows. The pair edged higher during the Asian session on Thursday but lacked any follow-through amid rallying US bond yields and was last seen trading with minor losses, just below the 1.3600 mark.

That said, increasing bets for additional US financial aid and a strong global economic recovery in 2021 should help limit any meaningful slide for the major. Market participants now look forward to the UK Construction PMI for some impetus. The US economic docket highlights the releases of the usual Initial Weekly Jobless Claims and ISM Services PMI. The data, along with the broader risk sentiment, might influence the USD price dynamics and produce some meaningful trading opportunities.

From a technical perspective, the overnight slide below a one-and-half-week-old ascending trend-line support might have shifted the bias in favor of bearish traders. However, resilience below the 200-hour SMA makes it prudent to wait for some follow-through selling below mid-1.3500s before positioning for any further depreciating move. A convincing breakthrough might turn the pair vulnerable to accelerate the slide to the key 1.3500 psychological mark. The mentioned level coincides with the 38.2% Fibonacci level of the 1.3188-1.3704 strong move up and should act as a key pivotal point for short-term traders.

On the flip side, the overnight swing highs, around the 1.3670 region, now becomes immediate strong resistance. A sustained move beyond will negate prospects for any further decline and assist bulls to make a fresh attempt to conquer the 1.3700 mark. The momentum could further get extended towards the 1.3780-85 intermediate resistance before the pair eventually aims to reclaim the 1.3800 mark.

3) EUR/USD: Bulls Could Aim To Reclaim 1.2400 Mark amid US Stimulus Hopes

The EUR/USD pair shot to fresh 33-month tops on Wednesday amid sustained US dollar selling bias. The market started pricing in the possibility of a more expansive fiscal policy in the wake of a Democratic victory in the crucial US Senate runoff elections in the state of Georgia. A ‘blue wave’ will allow incoming President Joe Biden to pursue his preferred economic policies, which, in turn, was seen as a key factor that continued weighing on the greenback.

On the other hand, the shared currency seemed rather unaffected by dismal Eurozone data. In fact, the final version of Markit’s Services PMI indicated that economic activity in Eurozone contracted for the second successive month in December and more sharply than originally estimated. The situation is expected to get worse amid renewed coronavirus-induced lockdowns in the region. Apart from this, Germany published the flash estimate of December inflation figures, and showed consumer prices are expected to rise by 0.5%, drop 0.3% YoY in December.

Meanwhile, expectations of larger government borrowing pushed the benchmark 10-year US Treasury yield beyond the 1.0% mark for the first time since March and helped ease the USD bearish pressure. Investors also seemed worried about the prospect of tighter regulations on technology mega-caps. This led to a selloff in Nasdaq futures, which assisted the safe-haven greenback to stage a modest intraday bounce and prompted some selling around the major.

The attempted USD recovery quickly ran out of steam following the disappointing release of the ADP report, which showed that employment in the US private sector decreased by 123K in December. The reading was worse than November’s 304K and also missed expectations by a big margin. Separately, the minutes from the Fed’s meeting last month revealed unanimous support to keep the bond-buying program unchanged and that some members are in favor of expanding stimulus. The minutes, however, did little to provide any respite to the USD bulls.

The pair finally settled with modest gains for the third consecutive session, albeit lacked any strong follow-through buying amid rallying US bond yields. The pair edged lower during the Asian session on Thursday and was last seen trading just above the 1.2300 mark. The downside, however, is likely to remain limited amid hopes for an additional US financial aid package and a strong global economic growth in 2021, which should continue to undermine the greenback.

Market participants now look forward to the flash Eurozone CPI figures for a fresh impetus. The US economic docket highlights the releases of the usual Initial Weekly Jobless Claims and ISM Services PMI. The data, along with the broader market risk sentiment, might influence the USD price dynamics and allow investors to grab some meaningful trading opportunities.

From a technical perspective, the overnight move beyond the previous double-top resistance near the 1.2310 region might have already set the stage for additional gains. With technical indicators on the daily chart still far from being in the overbought territory, the pair seems all set to prolong the upward trajectory and aim to reclaim the 1.2400 round-figure mark for the first time since April 2018.

On the flip side, any subsequent slide below the 1.2300 mark might now be seen as a buying opportunity and remain limited near the 1.2255-50 region. The latter marks a near three-week-old ascending trend-line and should now act as a key pivotal point for short-term traders. A convincing break below might turn the pair vulnerable to slide below the 1.2200 mark and test the next major support near the 1.2130-25 congestion zone.