Tuesday 16 January 2018
In the wake of a weaker dollar (-0.62% and working through technical support, eyes 200M MA at 88.295) and hawkish ECB minutes from December’s meeting, the news that Germany is making headway towards a coalition party and how Berlin and Paris have stepped up and pushing for a eurozone reform deal, the euro is on the march and was a few pips shy of the 1.23 handle.
Investors are moving out of the dollar and moving into the euro while the EZ economy is improving and investors are expecting some catch up with the Fed from other Central Banks, both of which is propelling EUR/USD higher on the charts. Observers are predicting that the core inflation in the EZ will grind higher and close in on ECB target levels by the end the year.
Below, in an interview that ECB Governing Council member Ardo Hansson gave to the daily German newspaper Boersen Zeitung, Hansson suggested that the ECB could end QE after September:
“Could end QE ‘in one step’ without any problems.
Many eurozone countries badly prepared for interest rate reversal.
Should hike rates ‘a few times’ before beginning to shrink balance sheet.
Could end QE after September if we see economy & inflation develop as expected.”
Technically, the outlook remains bullish on the daily sticks with the 10-D SMA broken last week and 1.2260 that had been a strong static support back in Dec 2014 ahead of 1.2500 on the wide comes as a potential support again. 1.2432 as the 200 MMA comes as the next target.
GBP/UD was up to 1.3819 during the European day with a weak greenback making for the highest level since Britain voted to leave EU (on 23 June 2016), closing around 1.3795.
GBP/USD lacked domestic data from both sides of the unit while, instead, traders await Tuesday for the inflation figures, including CPI, PPI and the Retail Price index for December while second-guessing BoE’s next move. BoE’s Tenreyro on Tuesday was hitting the wires and said to expect a couple of more rate hikes over next three years. Meanwhile, on the Brexit front, the Scottish PM, Nicola Sturgeon, warned that Brexit could cost Scotland up to £16B a year.
GBP/USD broke up through 1.3658/71 September highs and a double Fibonacci retracement area with Momentum on the daily chart that was firmer while RSI moved the 70 mark. The high of 1.3820 opens a target for 1.3836 as the February 2016 low. 1.4000 is the next hurdle as the 26th March 2016.
USD/JPY was holding on to 110.50 for the best part of European and NA trade with the US being out for MLK day while markets contemplate next week’s BoJ.
The BoJ will be closely watched given the talk that QQE could be adjusted this year and with the ICE dollar index hitting the lowest level in more than three years on Friday could be notably marked to such sentiment, but not just for the BoJ, also the ECB. Meanwhile, US data releases for the week ahead include the December production numbers, the Fed’s Beige Book and University of Michigan confidence and inflation expectations surveys. All eyes will be on the bond market in the US opening Tuesday for further indications where US yields are heading how the spread and subsequently the direction of USD/JPY will be affected.
The price broke the 50% of Sep-Nov rise at 111.03 and the 110.85 support area down to 110.35 the recent low. However, 110 is in the spotlight now while RSI threatens a break of 30 on the daily sticks with the 10-D SMA steepening lower below the 21-D SMA and below the 100-D SMA.
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