Talking Points
– EUR/USD driven by soft data, potential incentive for more ECB easing.
– USD/JPY returns to key former support – crucial for forming a bottom.
– Follow live sentiment readings with DailyFX SSI.
After a weak attempt yesterday, the USDOLLAR Index finds itself once again attempting to breakout of its recent two-month consolidation. The inverted hammer that formed yesterday was no surprise, as we indicated our skepticism over the internals of the index; there was no continuity among the pairs. Today, the same remains true, with a twist: whereas in recent days the gains in the USDOLLAR Index have been driven by AUD/USD and GBP/USD; today the catalysts are EUR/USD and USD/JPY.
EUR/USD’s decline today is of interest as it may have two sources. First, European equity markets are running higher, and foreign investors may be hedging their exposure (by having a EUR-denominated asset on their balance sheet) by taking out short EUR/xyz positions to eliminate the foreign exchange exposure. However, as noted in the video, this may be becoming a less prominent influence.
Second, the November Euro-Zone Industrial Production report was much weaker than anticipated, raising the odds of a disappointing Q4’15 Euro-Zone GDP report, and in turn boosting the possibility that the ECB sees the soft conditions, in context of energy prices persistently below their 2016 forecast, and acts again when they can present new Staff Projections in March.
USD/JPY, on the other hand, is facing a crucial test of its own. The pair has found itself trading higher back towards ¥118.40, which held as support last February, March, April, August, and October, until finally giving way last week. Likewise, with the daily 8-EMA coming into this level, it seems that this will be an important junction in the short-term.
Chart 1: USD/JPY Daily: January 2015 to January 2016
See the above video for technical considerations in the USDOLLAR Index, AUD/USD, GBP/USD, EUR/USD, USD/JPY, EUR/GBP and NZD/USD.
Read more: USDOLLAR Index Unconvincingly Attemps Breakout
— Written by Christopher Vecchio, Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
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Source: Daily fx