USD Strengthens As Markets Become Nervous

Jan 12 21, 11:04 GMT

The USD tended to strengthen against a number of its counterparts yesterday as markets got somewhat nervous over a possible second impeachment of US President Trump. In the U.S. House of Representatives, the intention of impeaching President Trump for a second time seems to be gaining ground among Democrats unless he steps down or is being removed by his cabinet invoking Amendment 25 to characterize him as unfit for office. It’s being reported that the Democrats plan to impeach Trump by Wednesday in the House of Representatives, which if successful would trigger the proceedings for a trial at the US Senate once again. At the same time, the President and the Vice President do not show any signs of resigning or stripping President Trump from his powers. Beside the political uncertainty in the US also the Fed’s unwillingness to further flood the market with asset purchases seems to support the USD, while on the flip side intentions by Biden for further fiscal stimulus could remove some uncertainty and weaken it. Should market worries intensify we may see the USD strengthening further while US stock markets may start dropping.

EUR/USD continued its slide yesterday dropping below the 1.2155 (R1) support line, now turned to resistance. We maintain a bearish outlook for the pair as long as it remains below the downward trendline incepted since the 7th of the month. Please note though that the RSI indicator below our 4-hour chart is at the reading of 30, confirming on the one hand the presence of the bears, yet on the other may imply that the FX pair is oversold and a correction higher is imminent. Should the market’s selling interest be maintained, we could see EUR/USD breaking the 1.2100 (S1) support line and aim for the 1.2050 (S2) level. Should the pair find fresh buying orders along its path though, we could see the pair breaking above the 1.2155 (R1) resistance line once again and aim for the 1.2155 (R2) level.

Pound gains despite all odds.

The pound tended to gain against the USD, EUR, JPY and CHF yesterday despite the situation in the UK remaining rather dire regarding COVID 19. UK’s PM Johnson stated that the UK is at a “very perilous moment” in the Covid pandemic, as a rise of coronavirus infections has put the health system under substantial pressure. The PM also stated that there is now a “race against time” to reduce the number of new infections while there are worries that the health system may be overwhelmed and at the same time vaccination is being intensified in order to provide a quicker way out of the crisis. On the monetary front BOE’s MPC member, Silvana Tenreyro, said that in the UK, it is possible that more stimulus will be needed. Regarding negative rates, she said that she has nothing new to add to the matter, yet it’s important for policymakers to keep that option open, but all the delay seems to imply some unwillingness on behalf of the bank to lower its rates in the negative territory. We expect that the situation with Covid 19 to continue to weigh on the pound and should BoE officials imply an increased chance for the bank to employ negative rates we may see the pound weakening .

Cable bounced on the 1.3470 (S1) support line yesterday halting its descent lower. Given that GBP/USD seems to still be guided by the upward trendline incepted since the 24th of September, we maintain our bullish outlook for the pair. Should the bulls maintain control over the pair’s prices, we could see it breaking the 1.3585 (R1) resistance line and aim for the 1.3700 (R2) level. Should the bears regain control, we could see it breaking the for the 1.3470 (S1) support line and aim for the 1.3375 (S2) support hurdle.

Other economic highlights today and early tomorrow:

Today during the European session, we note the release of Norway’s GDP, while in the American session we get the US Jolts openings for November and later on the API weekly crude oil inventories figure. As for speakers Atlanta Fed President Bostic, Fed Board Governor Brainard, Cleveland Fed President Mester, Kansas Fed President George are scheduled to speak.

EUR/USD H4 Chart

Support: 1.2100 (S1), 1.2050 (S2), 1.2000 (S3)
Resistance: 1.2155 (R1), 1.2215 (R2), 1.2285 (R3)