Forex Today: 2020 kicks off with the dollar recovering amid Chinese RRR cut, trade optimism

Yohay Elam FXStreet

Here is what you need to know on Thursday, January 2, 2020:

China announced a 50 basis point cut to its Reserve Requirement Ratio (RRR) on New Year's Day, unleashing over $100 billion in liquidity. Markets are cheering the move, which authorities had hinted to. The Caixin Manufacturing Purchasing Managers' Index ticked down to 51.5, still reflecting growth.

The US Dollar is recovering some of the ground it lost in the dying days of 2019, with EUR/USD slipping toward 1.12, GBP/USD pressured toward 1.32, and AUD/USD dipping under 0.70. The move seems to be related to profit-taking.

Trade: Ahead of the holiday, President Donald Trump announced that the US and China will sign Phase One of the trade deal on January 15. Further talks will begin afterward.

Final manufacturing PMIs are due out today in Europe and in the UK. The industrial sector has been struggling.

Oil prices are off the highs despite higher tensions between the US and Iran. Protesters stormed the American embassy in Baghdad after a US strike on Iranian-backed militias in Iraq.

Cryptocurrencies kicked off 2020 on the back foot, with Ripple coming under pressure as around one billion tokens are released to the market.

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Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

GBP/USD advances to three-month peak beyond 1.3600

GBP/USD extends its daily rally and trades at its highest level since mid-May above 1.3600. The US Treasury Department decision to double the sice of liquidity support buyback operations for longer-dated nominal coupon securitiez weighs heavily on the US Dollar and helps the pair push higher. Earlier in the day, the data from the UK showed that annual Consumer Price Index (CPI) inflation picked up to 2.9% in July, meeting estimates, while core CPI rose by 2.6% YoY in July versus 2.5% expected.

EUR/USD surges to 11-week high above 1.1650 after US Treasury announcement

EUR/USD gathers bullish momentum and trades at its highest level since early June above 1.1650 on Wednesday. The US Dollar stays under heavy bearish pressure after the US Treasury announced that it will increase the size of liquidity support buyback operations for longer-dated nominal coupon securities. Later in the day, investors will scrutinize FOMC Minutes for fresh clues on policy outlook.

Gold holds above $4,500, highest since June on falling US bond yields

Gold eases from its highest level since early June, though it trades above $4,500 during the Asian session on Thursday. The US Dollar draws some support from the US-Iran standoff and hawkish FOMC Minutes, capping the upside for the bullion. Meanwhile, the US Treasury Department stepped in to provide relief to bond markets, leading to a further decline in yields and limiting the downside for the non-yielding yellow metal.

Ethereum jumps 18%, sparks over $1 billion in liquidations

Ethereum (ETH) has gained nearly 18% on Wednesday, sparking heavy short liquidations after weeks of sideways price action. The top altcoin saw over $1.11 billion in liquidations over the past 24 hours, driven by $1.02 billion in short liquidations, according to Coinglass data. Nearly half of that figure came in under an hour.

$20 billion offered, $2 billion taken: Why Treasury doubled its buyback cap

The US Treasury moved off its own calendar on Wednesday, and that is the part worth sitting with. At 12:32 GMT, the department said it would at least double the size of liquidity support buyback operations in the 10-year to 20-year and 20-year to 30-year sectors, lifting the maximum from $2 billion per operation to at least $4 billion, effective September 9 and running to November 4.

Why is Crude Oil priced for a reopening the ships haven't made?

Fourteen vessels crossed the Strait of Hormuz on Tuesday. Before the war, the count ran near 120 a day. In the sessions since the waterway was publicly declared open, Brent has drifted back to $87 and West Texas Intermediate (WTI) to $81, both a little lower again on Wednesday, with daily momentum on each unwound from the top of its range in late July to the low twenties now.