Dollar Traders Await Interesting Day Ahead

Dec 22 21, 09:33 GMT

The greenback enjoyed a rather positive session on Tuesday along with the US major stock markets that also moved in green territory. The USD dominated the scene against major counterparts like the JPY, AUD and the CHF. The market’s concerns continue to be dominated by the spread of the Omicron variant globally, which may have created a risk on sentiment. Some analysts suggest that the recent most notable rise in Omicron cases can perhaps extend the global supply-chain disruptions subsequently prolonging higher inflation levels. On the bright side however, despite the uncertainty remaining elevated, traders seem enticed to actively participate in the equities markets.

On a separate note, the benchmark 10-year Treasury note moved higher on Tuesday putting further emphasis on the US economy. On Wednesday Dollar traders could possibly have their hands full with a number of important US economic data to be released. The release of the final GDP rate for Q3, as well as the number of existing home sales for November could provide some support for the USD, should they improve. Yet, we highlight the US consumer confidence indicator for December which is the most relevant reading to the present moment.

In the past four hour sessions USD/JPY has tested the (R1) 114.20 resistance level yet was unable to breach above it. If the upward momentum is to continue then the (R2) 114.70 could become the next target for the bulls, while even higher the (R3) 115.35 resistance remains the highest level for this analysis and could be used in a prolonged buying strategy.

If the currency pair returns to lower grounds we suggest the (S1) 113.80 could be met first, while a move even lower could bring the (S2) 113.25 level into focus. Finally the (S3) 112.75 level could be met in an extensive bearish interest scenario, as it was last tested in the beginning of December. The RSI indicator below our chart has stabilized below the 70 level possibly implying the buying interest may have fizzled out for the time being. With the current price action by the pair, our personal view is for a sideways motion.

CZK in focus as CNB’s Interest rate decision is expected

Today CZK trades are expected to keep a close eye on CNB’s interest rate decision. The bank is widely expected to hike rates by 75 basis points raising the 2-week repo rate from 2.75% to 3.50%. At the moment, CZK OIS imply that the market has fully priced in such a scenario materializing. High inflationary pressures in the Czech economy also tend to advise further tightening of the bank’s monetary policy. Previously CNB raised its interest rate 4 times in 2021 which was mostly aimed at bringing inflation near its 2% target.

If the bank actually proceeds with a rate hike as forecasted, we may see CZK getting support, while a smaller rate hike may disappoint traders as could a more cautious stance, instigating a selling of the Koruna.

EUR/CZK continues to be in a selling momentum which is highlighted by the yellow descending line on our chart. At the moment the currency pair continues to be moving nearby the (S1) 24.850 support level but has been unable to break below it so far. If the selling persists we see the price action moving towards the (S2) 24.815 line while even lower the (S3) 24.780 is also imminent. If the currency pair moves upwards then the (R1) 24.920 could be met first as it was in the past days. Higher we have noted the (R2) 24.960 resistance line as the next possible stop for the bulls, while at the top the (R3) 25.000 which was met for the last time on the 17th of December can also be retested. Please note if the price action moves above the yellow descending line then we would change our bearish outlook to a sideways one.

GBP eyed as UK GDP rates are to be released

The pound was stronger than both the EUR and the USD on Tuesday even though the UK continues to face increased difficulties with the variant spread. However, the pound may have been supported after Rishi Sunak Chancellor of the Exchequer, announced an amount exceeding £1bn in support for companies across the UK hit hardest by the pre-Christmas surge in cases of the Omicron coronavirus variant. This may have come as a surprise to investors as previously the Chancellor seemed reluctant to provide further economic support other than the one that was already in place. Businesses that will benefit the most from the new announcement are said to be the hospitality and leisure sectors which saw a wave of cancellations recently. Moreover, on Wednesday we note the release of UK’s GDP final rates for Q3 and the UK Current Account balance for Q3 later on.

Other highlights for today

Today in the European session we get the UK’s GDP rates for Q3 while a later on we also receive the UK Current Account figure for Q3. In the European afternoon we get the CNB Repo Rate while at the same time we get the US GDP rates for Q3. Sometime later we get the US Consumer Confidence for December and the US Existing Home Sales for November. Finally we get the weekly EIA Crude Oil stockpiles figure.

USD/JPY H4 Chart