President Trump came to Draghi's rescue in the late NA session yesterday, but Yuan played spoilsport in Asia. ECB's Draghi failed to talk down the EUR, but Trump's "strong dollar" gave a much-needed boost to the USD, leading to a drop in EUR/USD.
The dollar index (DXY) rose from 88.55 to 89.41 following Trump's comments. However, the bid tone weakened in Asia, largely due to rise in the Chinese Yuan. The PBOC lifted its official yuan midpoint for the sixth straight day to 6.3436 per dollar, the strongest level since November 2015. Yuan's resilience to Trump's comments likely put a bid under other major currencies like EUR, GBP, and JPY.
While speaking to CNBC yesterday, Trump said that Treasury Secretary Mnuchin (weak dollar comment) was misinterpreted and that the greenback will ultimately strengthen. However, experts say markets are unlikely to drop their suspicion that the Treasury does see the weak USD as a net positive for US economy. This explains the weak follow-through buying in USD in Asia.
That said, the greenback look oversold as per technical studies and hence could rise sharply if the US preliminary Q4 GDP reading shows a solid rise in personal spending and the December durable goods orders print higher than expected.
What's brewing in the majors?
EUR/USD - Uptrend is intact, although yesterday's bearish pin bar warrants caution. A negative price action today would confirm the bearish pin bar reversal and indicate a short-term top is in place at 1.2538. The accelerated trendline drawn from the Jan. 11 low and Jan. 23 low could offer support at 1.2330.
GBP/USD - Recovery from the NA session low of 1.4083 seems to have stalled at the 1-hour 100-MA. Kathy Lien from BK Asset Management writes, " Q4 GDP is significant enough to trigger profit taking in GBP/USD if it falls short of expectations, but like Eurozone data, UK data have been on a positive trend. GBP/USD hit its strongest level since June 2016 and there's no major resistance until 1.45."
USD/JPY - The pair is likely building a base above the 1-hour 50-MA. The widening 10-year US-Japan yield spread favors the US dollar, however, put options continue to get more expensive, suggesting a potential for more losses in the USD/JPY pair.
- BOJ's Kuroda - Inappropriate to talk about an exit strategy or a change in policy
- BOJ Minutes - Appropriate to keep powerful easing, inflation expectations stop declining
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