GBPUSD

The British Pound received a beating that pushed the cable to a low of 1.4150. Markets punished Pound since BOJ’s negative rates is expected to trigger another round of currency wars/race to negative rates across the advanced world. That also means the Bank of England (BOE) would be under pressure to cut rates rather than hike. Even the derivative markets hint at a chance of a BOE rate cut now. Do not be surprised if the marginal change turns into a significant in next six months or so.

UK PMI manufacturing may disappoint

The UK manufacturing PMI (Jan) is seen at 51.8 compared to last month’s reading of 51.9. The odds of a weaker-than-expected number are high since the CBI total trends survey released last week showed a sharp decline in the orders received by the British manufacturers in January due to weaker demand for exports. A weaker-than-expected headline number could make it difficult for the GBP/USD pair to break above the rising trend line resistance at 1.4310. A combination of a weak UK data and a strong US personal spending report could send the cable lower to falling trend line support currently seen at 1.4136.

Technicals – Could target 1.4351 above strong resistance at 1.4310

  1. Sterling’s sharp recovery from the falling channel support (red circle) seen on the hourly chart coupled with a move above 10-DMA at 1.4252 in Asia today indicates the currency may test 1.4310 (rising trend line resistance).

  2. A break above 1.4310 could see the pair target 1.4351 (23.6% of 1.5230-1.4079). The bulls still have a hope given the rebound from the falling channel support (red circle). However, bulls would need a daily close 1.4405 (former inverted head and shoulder neckline).

  3. On the other hand, a break below 1.4228 (support on the hourly chart) would open doors for a drop to 1.4136 (falling channel support).


EUR/USD Analysis: Risk-off could send pair higher to 1.09

EURUSD

The EUR was offered sharply on Friday as BOJ’s move to negative rates triggered speculation that ECB would retaliate with a bigger-than-expected cut in the deposit rate (currently at -0.30%). Furthermore, the risk-on in the markets (again triggered by BOJ’s negative rates) also strengthened on the offered tone around EUR. The EUR/USD pair fell to a low of 1.0809 before trimming losses slightly to end the day around 1.0829.

Focus remains on risk sentiment ahead of US data

Shares in China fell on mixed PMIs for manufacturing and services. But, markets in Japan rose after BOJ’s negative rates surprise. It remains to be seen if the European equities extend Friday’s risk-on rally. The odds of the risk-on stand at coin toss levels as – expectations of more ECB easing could keep stock supported, however, China also plays a major role in deciding market sentiment. Hence, it is difficult to guess if the European stocks would extend rally or turn risk averse. A risk-off action could send the EUR/USD pair higher to 1.0890-1.09 levels. On the other hand, if the stocks move higher the pair may fall back to 1.08-1.0777 (Jan 21 low).

Technicals – daily close below 1.08 would be bearish

  • Euro’s rebound from the falling channel support in Asia has raised hopes of a further extension of the rally in Europe to 1.0890 (38.2% of 1.1495-1.0517)-1.09 levels.

  • However, Friday’s candle single handedly erased gains of the previous three trading sessions and hence the pair could run into offers.

  • On the lower side, a break below 1.0808 (rising trend line blue) could see the spot re-test 1.0777 (Jan 21 low).

  • A daily close below 1.0808 could open doors for a sell-off to 1.0710 (Jan 5 low).

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