Dollar Decline Slows But No Bottoming, Euro Softens

Market overviews

The forex markets are rather quite in Asia today, following subdued trading elsewhere. Dollar’s decline is slowing but it remains the worst performing major currency so far, followed by commodity currencies. Sterling and Yen are the stronger ones this week, as both are supported by rallies in respective treasury yields. Though, Swiss Franc is surprisingly even stronger, in a still risk-on market. While Euro stays firm against Dollar, it’s mixed elsewhere.

Technically, 104.39 resistance turned support in USD/JPY will remain a focus. It’s so far holding on to the level but firm break will suggest completion of near term rebound from 102.58. That would likely prompt deeper selloff in the pair and further confirm overall bearishness in Dollar. Euro is also starting to look weak against Sterling and Aussie. Eyes will be on when EUR/GBP and EUR/AUD would break through 0.8737 and 1.5615 temporary low respectively.

In Asia, currently, Nikkei is up 0.19%. Hong Kong HSI is up 0.34%. China Shanghai SSE is up 1.43%. Singapore Strait Times is down -0.19%. Japan 10-year JGB yield is up 0.0096 at 0.080, very strong. Overnight, DOW rose 0.20%. S&P 500 dropped -0.03%. NASDAQ dropped -0.25%. 10-year yield dropped -0.024 to 1.133.

RBA Harper: Still plenty of excess capacity in the economy

RBA board member Ian Harper said there’s “still plenty of excess capacity in the economy”. The tendency for monetary stimulus to product an asset-price bubble is “way off where we’re presently headed”. Policymakers indeed wanted asset prices to be increasing to speed up investment. Harper added,  “the bank can continue to buy bonds for as long as it likes, there’s no obstacle to that.”

“The recent changes that the Fed made, well that was to bring them up to where we are basically,” he said. “We’ve never religiously or rigidly interpreted the timeframe over which we would seek the inflation rate to be within the target band.”

Fed Powell: Far from a strong labor market despite surprising recovery

In a relatively dovish speech, Fed Chair Jerome Powell said, “despite the surprising speed of recovery early on, we are still very far from a strong labor market whose benefits are broadly shared.” And, “even those grim statistics understate the decline in labor market conditions for the most economically vulnerable Americans.”

“Given the number of people who have lost their jobs and the likelihood that some will struggle to find work in the post-pandemic economy, achieving and sustaining maximum employment will require more than supportive monetary policy,” he added. “It will require a society-wide commitment, with contributions from across government and the private sector.”

Gold recovery stalled after hitting 55 D EMA, staying bearish

Gold’s recovery lost momentum with 4 hour MACD crossed below signal line. That came after hitting 55 day EMA, and well ahead of 1875.59 near term resistance. Overall outlook stays bearish that decline from 1959.16, as the third leg of the corrective pattern from 2075.18, is in favor to continue.

On the downside, break of 1818.66 minor support will bring retest of 1784.67 first. Break will target 1764.31 and then 38.2% retracement of 1160.17 to 2075.18 at 1725.64. Nevertheless, break of 1875.59 will argue that the falling leg from 1959.16 has completed and bring stronger rebound.

On the data front

Australia consumer inflation expectations jumped to 3.7% in February, up from 3.4%. US will release jobless claims later today.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8747; (P) 0.8764; (R1) 0.8775; More…

Further decline is expected in EUR/GBP with 0.8838 resistance intact. Break of 0.8737 temporary low will target 0.8670 support first. It’s now in the third leg of the corrective pattern from 0.9499. Break of 0.8670 support would target 161.8% projection of 0.9291 to 0.8861 from 0.9229 at 0.8533. On the upside, though,k break of 0.8838 will indicate short term bottoming and turn bias to the upside for stronger rebound.

In the bigger picture, we’re seeing the price actions from 0.9499 as developing into a corrective pattern. That is, up trend from 0.6935 (2015 low) would resume at a later stage. This will remain the favored case as long as 0.8276 support holds. Decisive break of 0.9499 will target 0.9799 (2008 high).

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
0:00 AUD Consumer Inflation Expectations Feb 3.70% 3.40%
13:30 USD Initial Jobless Claims (Feb 5) 775K 779K
15:30 USD Natural Gas Storage -192B