USD Retreats Ahead Of Yellen’s Confirmation

Jan 19 21, 10:48 GMT

The USD retreated from yesterday’s almost one month high against a basket of currencies, ahead of Yellen’s confirmation in the Senate as US Treasury Secretary. Yellen is expected address currency policy, with the new Treasury Secretary probably stating that the US are not going to actively try to devalue the USD, allowing it to be market determined, while she may also address the issue of a fiscal stimulus, probably going big on it. Also, it should be noted that preparations for Biden’s inauguration tomorrow are ongoing, while this is the last day of President Trump in the White House. Security measures in the capital are high yet the possibility of riots like last week seems to have dampen but cannot be ruled out. Overall and given the lack of high impact financial releases from the US we expect fundamentals to maintain the lead in affecting the markets and should the risk on sentiment get a boost further, we may see the greenback suffering some safe haven outflows.

The USD index retreated after reaching an almost 1 month high yesterday and now is nearing the 90.55 (S1) support line. We may see some stabilisation taking place after the drop before the market decides on the direction of the index’s next leg. On the other hand, it should be noted that the RSI indicator below our 4-hour chart is above the reading of 50 confirming the presence of the bulls, yet on the flip side has a downward slope. Should the bulls take over, we may see the USD Index breaking the 91.07 (R1) resistance line and aim for higher grounds. Should the bears be in charge of the pair’s direction, we may see it breaking the 90.55 (S1) support line aiming for the 89.92 (S2) support level.

AUD gains on risk on mood

Commodity currencies such as the AUD, NZD tended to gain against the USD during today’s Asian session, as the market sentiment tended to be more on the positive side with enhanced optimism about China continuing to underpin growth in the area. The GDP and industrial output growth rates for Q4 and December were in the positives, showing that the second largest economy has overcome, the initial hit suffered by Covid 19 in the early months of the year and is one of the few developed economies which end the year in the green territory, enhancing expectations for increased and improved trading conditions. On other news, there are high expectations that the new US administration is to enhance vaccination and support substantially the US economy with increased fiscal spending, boosting the security sentiment in the markets which may benefit further the risk proxy AUD. We expect that should the risk on sentiment of the markets continue to dominate, AUD as a commodity currency could benefit gaining over the safe haven USD as analyzed above and ahead of the Australian employment data.

AUD/USD briefly broke the 0.7680 (S1) support line as was analysed yesterday, yet later on reversed course and during today’s Asian session jumped higher, aiming for the 0.7725 (R1) resistance line before stabilizing somewhat. As the pair clearly broke the downward trendline incepted since the 14th of January our initial reaction is to switch yesterday’s bearish outlook in favour of a rangebound movement, yet today’s fundamentals could alter the pair’s direction once again. Should buyers regain the momentum, we may see the pair breaking the 0.7725 (R1) resistance line aiming for the 0.7785 (R2) resistance level. Should on the other hand a selling interest be displayed by the markets for AUD/USD, we may see the pair breaking the 0.7680 (S1) support line aiming of the 0.7625 (S2) level.

Other economic highlights today and early Tuesday:

Today during the European session, we note from Germany the final HICP rate for December, and later the ZEW indicators for January, while on the monetary front, ECB’s Vice President De Guindos is scheduled to speak. In the American session, we get Canadas’ manufacturing sales as well as the while sale trade rates both for November.

USD Index H4 Chart