The US Dollar could come under further pressure against its major counterparts in the near term, as attention shifts towards the Federal Open Market Committee’s (FOMC) upcoming monetary policy meeting. The central bank is expected to keep its monetary policy settings steady while reiterating that accommodative monetary policy conditions are set to endure for the foreseeable future.

US Dollar Basket 20210127 12.00

4hour  chart bolsters the bearish outlook depicted on the daily timeframe, as prices carve out a Head and Shoulders reversal pattern above range support at 89.95 – 90.05.

A convincing break below 89.90 is required to validate the bearish reversal pattern and propel the index back towards the yearly low (89.21), with the implied measured move suggesting price could fall 1.4% from current levels to test the March 2018 low (88.94). Remaining constructively perched above 90.00 could allow buyers to drive the index back towards the January 26 high (90.61). 

 

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The DAX hasn’t really done much in the last few weeks as it continues to converge at the 13,830 mark. The lack of bullish support has left the index consolidating between the all-time high at 14,140 and the horizontal support at 13,530 as it waits for the next risk event to offer some direction. The index still continues to be expensive at current levels and we may see sellers popping into the market as they buy the peaks in an attempt to bring it down further.
Next week we’ll see GFK consumer sentiment reading for February being the most forward-looking. The question is whether markets will care. 

Germany 30 20210122 12.58 1

So where does this leave the DAX? The index is still in a pretty strong position, and although European equities are lacking the upside momentum to keep up with risk-on sentiment, we haven’t really seen yet a strong bearish signal that price will be reversing as of now, which means the DAX continues to be expensive.

13,830 seems to be a good support area in the short-term, and we see price converging to this area, but it is not until we see price head towards 13,530. Consolidation between this level and the all-time high at 14,140 is likely something we’ll continue seeing in the next few weeks unless we see a significant risk event that moves markets.  

 

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Much like the rest of the G10 FX space, the Australian Dollar has struggled for direction with the recent uptrend beginning to stall at 0.78. Risk sentiment has eased slightly thus pushing the Aussie back to the mid-77s. However, with Fed Chair Powell re-enforcing comments made by the majority of the committee by downplaying talks of tapering QE purchases the threat of spiking higher rates may have cooled for now in the short-term. On the downside, support is situated at 0.7680-0.7700 with a move below opening the doors to 0.7643 (YTD low) making for a more meaningful pullback. 

AUDUSD D1 01 15 2021 1623

Looking ahead to next week, initial focus will be on Chinese GDP, which is expected to print at 6.1% Y/Y with a Q/Q reading of 3.2%. On the domestic front, theAustralian Labour market report will be the key risk event for the Aussie, where the jobs markets is expected to continue its recovery, particularly after the December job ads, thus expectations are for the unemployment rate to dip slightly to 6.7%.

From a technical perspective, GBP/USD rates look set to retest the yearly high set on January 14 (1.3711) as price remains constructively perched above the 2019 high (1.3515) and the 34-day exponential moving average.

GBPUSD D1 01 19 2021 1403

With the RSI and MACD indicator both traveling firmly above their respective neutral midpoints, the path of least resistance looks skewed to the topside.

Spot Gold 20210107 19.40

The daily gold chart is now flashing a couple of negative signals that need to be closely watched. A potential ‘death cross’ where the 50-dma trades down through the 200-dma is close to being formed and warrants attention, while yesterday’s bearish engulfing candle also suggests lower prices ahead.

 

 

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