USD Weakens As US Yields Decline

Jan 13 21, 11:40 GMT

The USD weakened against a basket of its counterparts yesterday as US yields tended to be on the retreat after a well-received auction. Demand was high for a $38 billion 10-year auction yesterday and in conjunction with Fed policymakers’ comments reassuring that the Fed is to continue to provide support to the economy tended to weaken the USD. At the same time, it should be noted that the momentum for impeaching President Trump seems to continue to build-up in the House of Representatives and a vote is reportedly to take place on Wednesday, which adds to the political uncertainty, yet with seven days to go until Trump leaves office, the effect may have been moderated. On the Covid front, optimism seems to be in the driver’s seat, as expectations that when Biden takes over, vaccinations are to pick up pace substantially and provide a swifter return to normalization. Should the market sentiment continue to be on a risk on mood we may see the USD suffering further safe haven outflows, while stock markets may rise somewhat, yet today trader’s eyes are expected to be on the US inflation rates for December as well as a number of speakers which are scheduled to speak.

AUD/USD jumped during the American session clearly breaking the 0.7725 (S1) resistance line now turned to support, however stabilised during today’s Asian session. We would like to see more consecutive higher peaks and troughs before calling the bulls, and currently we maintain a bias for a sideways motion. Should the pair find fresh buying orders along its path, we may see it breaking the 0.7785 (R1) resistance line and aim for the 0.7835 (R2) level. Should a selling interest be displayed by the market, we may see the commodity currency retreating against the USD, breaking the 0.7725 (S1) support line and aim for the 0.7680 (S2) level.

Pound gains on Bailey’s comments

The pound strengthened against the USD, EUR, CHF and JPY yesterday benefiting from the USD’s weakness, yet also jumped higher due to internal fundamentals on monetary policy as BoE Governor Bailey dampened expectations for negative interest rates by the bank. Governor Andrew Bailey stated yesterday that there are “lots of issues” with cutting rates below zero and such a move could hurt banks. On the fiscal front though we remind traders of Chancellor of the Ex Chequers Sunak statements, that UK’s economy could get worse before it gets any better while the UK is currently suffering its third lockdown in an effort to curb the spreading of the disease while vaccination is ongoing. Should the expectations for negative rates continue to retreat, we may see the pound strengthening further, while a resurgence of Covid cases could weaken it. Cable continued to rise yesterday breaking the 1.3585 (S1) resistance line, now turned to support. We tend to maintain a bullish outlook for the pair, given that the upward trendline incepted since the 24th of September continues to guide it. Should the bulls maintain control over the pair’s prices, we could see it breaking the 1.3700 (R1) resistance line and aim for the 1.3835 (R2) level. Should the bears regain control, we could see it breaking the for the 1.3585 (S1) support line and aim for the 1.3470 (S2) support hurdle.

Other economic highlights today and early tomorrow:

Today during the European session, we note the release of the Czech Republic’s CPI rates for December and Eurozone’s industrial output growth rate for November, while also ECB President Lagarde’s speech could generate substantial interest among EUR traders. During the American session, we note the release of the US CPI rates for December as well as the weekly EIA crude oil inventories figure. Please note that during the American session St. Louis Fed President Bullard, Fed Board Governor Brainard, Philadelphia Fed President Harker and Fed Vice Chair Clarida are scheduled to speak and could affect traders’ opinion about the heading of the USD. During tomorrow’s Asian session we get from Japan the corporate goods prices for December and the Machinery orders for November, yet the main release could be China’s trade data for December with special interest for Aussie traders being on the import growth rate.

AUD/USD H4 Chart