INTRADAY TECHNICAL ANALYSIS 5 JANUARY (observation as of 06:00 UTC)
[EURUSD]
Important Levels to Watch for:
- Resistance line of 1.13239 and 1.13436.
- Support line of 1.12601 and 1.12404.
Commentary/ Reason:
The euro hovered near a two-week low against the dollar at $1.12895.
The US Treasury yields remain at higher levels, keeping the dollar underpinned while maintaining the bearish pressure intact. Rising coronavirus cases globally combined with the hawkish Fed’s expectations continue to keep the sentiment lifted around the yields worldwide.
The euro was on the back foot with the European Central Bank also likely to be slow to raise rates, while the dollar strengthening on increased market expectations that the Fed to speed up its tapering of bond purchases, putting it on track to conclude it in March 2022 and paving the way for three interest rate hikes by the end of next year.
In the rates market, the yield differential between US Treasuries and German Bunds has expanded further, approaching its largest level since November 2021 for the 2-year maturities.
The EUR/USD continues to trade within a bearish channel, although the short-term trend of recent weeks saw the pair trading on a tight range between 1.124 and 1.134 with reduced volumes due to the holiday season. The 14-day RSI is inching lower below the midline, suggesting that the downside bias remains intact.
[USDCHF]
Important Levels to Watch for:
- Resistance line of 0.91997 and 0.92227.
- Support line of 0.91253 and 0.91023.
Commentary/ Reason:
The dollar trade slightly higher on Wednesday, at 0.91646 franc, though drifted off the 1-week high touched on Monday.
The U.S. dollar tracked firmer Treasury yields to trade higher. Fed rate-hike concerns and virus updates were catalysts for the next pair movement.
Despite the continuous surge in new COVID-19 cases, investors remain optimistic over signs that the Omicron variant might be less severe than feared and is unlikely to derail the economic recovery. A generally positive tone around the equity markets undermined the safe-haven Swiss franc.
On the other hand, the dollar drew some support from a fresh leg up in the US Treasury bond yields. Fed's hawkish outlook further acted as a tailwind for the greenback and provided a goodish lift to the USD/CHF pair.
[USDJPY]
Important Levels to Watch for Today:
- Resistance line of 116.605 and 117.023.
- Support line of 115.254 and 114.837.
Commentary/ Reason:
The yen was pinned near a five-year low on the dollar on Wednesday. It last sat at 116.017 per dollar.
A sharp jump in U.S. Treasury yields and the widened gap on Japanese yields - anchored by the central bank - significantly hurt the yen. Looking forward, the Fed-driven sentiment and COVID updates will continue to have an impact on the yields, in turn, impacting the pair.
Central bank divergence also was weighing on the yen with the Fed tapering QE and expected to raise interest rates well before the BOJ does.
[GBPUSD]
Important Levels to Watch for:
- Resistance line of 1.35762 and 1.36140.
- Support line of 1.34548 and 1.34160.
Commentary/ Reason:
The British pound held its early January gains and was traded flat on Wednesday to last bought $1.35295.
The UK on Tuesday ruled out any new coronavirus-related restrictions, with Prime Minister Boris Johnson saying that the country has "a chance to ride out this Omicron wave" without another lockdown. Traders reckoned that the surging Omicron cases in Britain won't deter the Bank of England from lifting rates.
The risk-positive market environment meanwhile provided a boost to U.S. Treasury bond yields. The broad-based dollar strength helped the greenback find demand, limiting GBP/USD's further rebound for the time being. That said, disappointing US macro data kept a lid on any further gains for the greenback.
The GBP/USD pair continued to rise yesterday to reach few pips away from our waited target at 1.3576, as it completed forming bullish flag pattern that we expect to motivate the price to surpass the mentioned level and head towards 1.361 as a next positive target.
