The announcement about the EU’s debt raising plan has been refuted by the EU’s Timmermans however, markets largely dismissed this with the Euro pushing higher today. EUR/USD is likely to remain subdued ahead of tomorrows stacked calendar with the ECB’s interest rate decision and U.S. inflation respectively.
Monetary will have minimal effect on inflationary pressure as supply constraints are the root cause of the current problem. The relief may be short-lived and price action looks to be setting up for another move lower as tensions are unlikely to dissipate quickly.
Trade accordingly with your risk
The Australian Dollar has been rallying with bullish momentum potentially confirmed by a Golden Cross when crossed above the 50-day SMA.
Further confirmation may unfold with a potential Golden Cross emerging as crossing above the 100-day SMA. Additionally, since making the low at 0.69676 in January, the price has made higher highs and higher lows, which may confirm an ascending trend.
Resistance might be offered at the previous peak of 0.73143. On the downside, support may lie at the the previous lows of 0.70948 and 0.70863.
Trade accordingly with your risk
Last week, AUD/USD reversed hard off the trend-line from October, with a key reversal setting up Aussie for a move lower. The reversal off the trend-line validated the it for the first time since coming into existence. This is setting up for a technical formation to continue to mature.
Between the trend-line from October and big horizontal support dating to October 2018, a descending wedge is starting to come into view. It will take some more time to develop and may not even create an opportunity until as far as April.
But the makings of a solid pattern are there, it just may require some patience before we have anything we can do with it. A decline back down to the 7000-line, which aside from being a psychological level has real meaning otherwise.
The most recent lows in December and January were carved out emphatically around that level. If price continues to wedge lower and ultimately break in the direction of the trend, a tendency descending wedges have, then we could see a big rush lower.
A busy session for USD/CAD traders with data and event releases that could impact both sides of the spread. Canadian inflation and US retail sales, both for January, are released both released at 13:30 GMT, while later in the session the minutes of the last FOMC meeting will also be released. All three events have the potential to move the pair and should be closely followed. It will be interesting to see in the FOMC minutes if the central bank rows back any of chair Powell’s hawkishness at the January 26 monetary policy meeting.
The daily chart shows how conflicting risk forces have kept USD/CAD confined in a 1.2635 to 1.2800 range over the last three weeks. The pair is currently moving towards support, with the Canadian dollar aided by a strong oil complex, while the US dollar remains underpinned by a robust rates background where the US 2-year offers a near two-and-a-quarter year high yield of 1.57%. This range will need a strong driver if it is to be broken and as such will likely hold in the short-term barring any strong data beat or macro surprise.
The BOJ announced last week that it would make purchases of an unlimited amount of 10-year JGB’s at 0.25% to avoid yields rising above this target level.
In stark contrast to a hawkish Federal Reserve, the dynamic remains heavily skewed towards long-term USD/JPY upside. Currently, risk aversion and investor shift to safe-haven assets including the Japanese Yen have kept Yen depreciation under control but should Russia/Ukraine tensions abate, there is significant scope a USD/JPY rally.
The deviation in monetary policy viewpoints between the Fed and BOJ makes the Yen the favored funding currency (low yielding currency that is used to purchase higher yielding currencies) giving support to the bullish outlook. USD/JPY continues on its path within the longer term channel with momentum firmly to the upside as evident by price action trading atop all three EMA levels, while the Relative Strength Index (RSI) prints well above the 50 midpoint level.
Despite fundamentals and technical favoring bulls, there is room for a pullback towards the 115.00 psychological handle based on the aforementioned geopolitical risk and investor flight to safety. This may be a good entry point for medium/long-term traders looking to buy the dip as I forecast USD /JPY closer to the 119.00 resistance zone by the end of 2022.