FUNDAMENTAL OVERVIEW
USD:
The US Dollar sold off across the board on Friday following rumours of the NY Fed conducting rate checks on the USD/JPY pair. The market took that as a signal of a potential intervention to strengthen the Japanese Yen and the unwinding of positions weighed on the greenback.
This wasn’t a fundamental-driven move but a “technical” one. In general, such reactions are eventually faded in the following days. The problem for the dollar is that there’s no strong reason for it to appreciate yet.
This week, we have the FOMC decision on Wednesday where the central bank is expected to keep interest rates unchanged and maintain a data-dependent approach for the next rate cuts. There shouldn’t be any surprise at this meeting. February might be key for the US Dollar as we get another set of economic data, with the NFP report likely being pivotal for the market pricing.
In fact, we’ve been seeing notable improvements in the US Jobless Claims data that could point to a re-acceleration in the labour market. The market is still pricing 48 bps of easing by year-end. Those bets are likely to be pared back in case the data strengthens and should provide support for the greenback.
EUR:
On the EUR side, Trump scrapped his tariffs threat after he reached a “framework” of a deal for Greenland in Davos, so that growth risk got priced out. In terms of monetary policy, the ECB remains in a neutral stance reaffirming its data-dependent and meeting-by-meeting approach to policy decisions.
ECB members continue to repeat that the current policy is appropriate, and they won’t respond to small or short-term deviations from their 2% target. The data has been supporting the central bank’s neutral stance, with inflation data recently surprising to the downside and PMIs showing a bit of a slowdown.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that EURUSD rallied hard last week and almost reached the cycle high around the 1.1918 level. This is where we can expect the sellers to step in with a defined risk above the cycle high to position for a drop into the 1.14 handle. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the 1.23 handle next.
EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see more that we have an upward trendline defining the bullish momentum on this timeframe. From a risk management perspective, the buyers will have a better risk to reward setup around the trendline to position for a rally into new highs. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the 1.14 handle next.
EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that we have the gap acting as support. The buyers will likely step in here with a defined risk below the gap to keep pushing into new highs, while the sellers will look for a break lower to extend the pullback into the trendline. The red line define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we have the weekly US ADP jobs data and the US Consumer Confidence report. On Wednesday, we have the FOMC policy announcement. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US PPI report.
