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Forex Daily Digest: January 11th

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Written by:
Myrsini Giannouli

11 January 2022
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  • JPY: Leading economic indicators
  • EUR: Italian retail sales
  • FOMC member speeches
  • Testimony of Fed Chair Jerome Powel
  • USD

    During the weekend, Goldman Sacks economists predicted that the Federal Reserve would raise interest rates four times within the year, rather than the three previously anticipated. The unemployment rate in the US is declining, while inflation soars, leading experts to expect a more hawkish monetary policy. A faster pace of raising interest rates and withdrawing stimulus will signal the gradual return to economic normalcy, boosting USD price. 

    On Monday, US Treasury yields reached a new two-year high and the US dollar index climbed to 96.21 on Monday morning, but dropped again to 95.92 later on Monday and is currently near the 96.0 level.

    FOMC members Loretta Mester and Esther George are scheduled to deliver speeches today. Fed members’ speeches are scanned by investors for insights into the bank’s future monetary policy. Hawkish comments will confirm the Fed’s commitment to a gradual return to a pre-pandemic monetary policy, benefitting the dollar. More importantly, Fed Chair Jerome Powel is scheduled to testify on Tuesday before the Senate Banking Committee on the subject of his renomination as the head of Fed. His speech and the following question and answer section are likely to affect USD price, as traders will use his comments in an attempt to gauge the Fed’s outlook on the expected rate hikes. 

    TRADE USD PAIRS

    EUR 

    On Monday, Germany’s and Italy’s 10-year bond yields rose, following last week’s release of a record-high inflation of 5% in December. As the fears of the pandemic abate and inflation soars in the Eurozone, investors hope that the ECB will finally consider tightening its monetary policy. 

    One key issue that will affect markets in the following weeks is the crisis between Russia and Ukraine. Yesterday, Russia displayed an unyielding stance in talks with the US and Nato. This situation may threaten the security of European borders in Ukraine if it escalates further.

    On Monday morning, the dollar gained strength and the EUR/USD rate fell to 1.128 but the currency pair gained strength again in the evening and is currently trading close to 1.133. The currency pair has been trading sideways between 1.118 and 1.139 for the past couple of months and these levels provide support and resistance points respectively. 

    Today, traders should take note of the release of the Italian retail sales data, which may affect the Euro slightly. More importantly, scheduled speeches by FOMC members and Fed Chair Jerome Powel later today are expected to cause some volatility on the EUR/USD rate. 

    TRADE EUR PAIRS

    GBP 

    GBP has been rising since mid-December due to the Bank of England’s hawkish outlook. Last week, the GBP/USD pair was in an uptrend, closing at almost the 1.36 level on Friday. The GBP has been gaining strength as fears over the Omicron strain ease and the British economy seems to be set on the path to recovery. Coronavirus measures in the UK are being relaxed, which raises hopes for a quicker economic recovery. 

    On Monday morning the pair fell to 1.353 but regained strength later in the day and is currently trading at the 1.357 level. The GBP/USD uptrend is expected to be tested on Tuesday. If the trend continues, a resistance point can be found at the 1.36 level and if the GBP/USD price falls, there is support at the 1.343 level. The scheduled Fed members’ speeches later on Tuesday and especially Jerome Powel’s testimony for his renomination as Fed Chair are expected to cause some volatility in the GBP/USD rate. 

    TRADE GBP PAIRS

    JPY 

    The JPY has been underperforming for the past few months, as the divergence in monetary policy between the Bank of Japan and other major banks is putting the currency at a disadvantage. With the US and UK central banks adopting a hawkish stance, the Bank of Japan continues its negative interest rate policy in an attempt to boost the economy. The USD/JPY pair was in an uptrend last week, but the uptrend was broken on Monday and the pair traded as low as the 115 level.

    On Monday however, there was a correction in the price of the currency, causing the USD/JPY to fall. If the pair resumes its upward trend, the 116 level will present a strong resistance point and another resistance point is at the 115.5 level, while if the USD/JPY rate continues to decline, it will find support at the 114.95 level. 

    Today, leading indicators are scheduled to be released in Japan, showing the direction of the economy and may cause some volatility in the currency. Also of interest for the USD/JPY rate are the scheduled speeches by FOMC members Loretta Mester and Esther George, as well as Fed Chair Jerome Powel’s testimony before the Senate Banking Committee.

    TRADE JPY PAIRS

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Written by:
Myrsini Giannouli

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