Forex Update: Risk Rally Continues as the Fed and the Dollar Remain in Focus

Forex Market Snapshot

Asset Current Value Daily Change
EUR/USD 1.1502 -0.32%
GBP/USD 1.2748 -0.38%
USD/JPY 108.33 0.27%
AUD/USD 0.7184 0.15%
GOLD 1,288 -0.41%
WTI Crude Oil 52.32 0.36%
BTC/USD 3,626 -9.39%

Forex markets had another eventful day amid the plunge in cryptocurrencies, and although yesterday the Dollar got hit hard, today the reserve currency managed to bounce back against its most important major. Risk assets had a modestly positive day, as although the US-Chinese trade talks ended without any specific result, let alone some form of an agreement, the central-bank-fueled oversold rally continued.

Fed Chair Jerome Powell gave yet another speech today, and he delivered a balanced message, saying that the Fed will be patient with its future rate hikes, while continuing with its quantitative tightening. The rally in US stocks lost some of its steam following the slightly less-dovish-than-expected speech, while the EUR/USD pair dipped back below the 1.15 level, and the Dollar Index climbed back above the 95 level.

The other major pairs were little changed, with the Swiss Franc’s dip being the other meaningful move, one day after the SNB published Foreign Reserve Report, disclosing large losses on its holding due to the recent turmoil in financial markets.

Technical Analysis

EUR/USD, 4-Hour Chart Analysis

Yesterday’s break-out in the most traded pair is already in jeopardy, as the Euro immediately retraced most of its gains today. The pair already got under pressure in early trading following the much weaker-than-expected French Industrial Production, and the common currency closed the session near its intraday low against the Greenback following Mr. Powell’s words.

The pair is now trading in the key support/resistance zone surrounding the 1.15 level, and although a failed move is not yet confirmed, bulls would quickly need a follow-through rally, especially in light of the clearly bearish long-term trend. The coming days will be crucial for the short-term trend, and a quick move towards the October swing high near 1.1625 is still in the cards, but we remain negative on the long-term outlook.

S&P 500 Futures, 4-Hour Chart Analysis

US stocks scored a marginal new bounce high today, but the momentum of the move was weak, and that’s a warning sign for forex traders trading the counter trend move in risk-on currencies as well. The major Wall Street indices have been leading the way higher, so far, this year, finishing in the green for the 5th day in a row today and getting back near their October lows in the process.

Despite the lofty post-Christmas gains, we still view the move as a counter-trend rally, and at the current levels, bearish risks are very high, even considering the dovish shift in the Fed’s rhetoric. Given the weaker bounce in the lagging global benchmarks, the broad global bearish trend continues to be dominant, and new lows are likely ahead for equities.

USD/JPY, 4-Hour Chart Analysis

The USD/JPY pair topped out near the 109 level after the flash-crash as we expected, and although another push towards the 110 level could be ahead, we expect the Yen’s rally to continue. The pair could challenge its lows from 2018, which stopped the flash crash last week, and traders should be looking for entry points on the short side, with other key levels to watch found at 105.50, 108.25, and 108.75.

Copper Futures, 4-Hour Chart Analysis

Copper continues to closely track Chinese equities, while showing clear signs of long-term technical weakness as well. The commodity turned lower off the dominant short-term trendline, and it’s likely headed back to the New-Year lows, with a clear break below last year’s low and a test of the $2.50 level looking more and more likely. Traders should still be looking for entry points on the short side, even as the correction in risk assets might still continue.

Key Economic Events Tomorrow

ChartBook

Forex

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

EUR/JPY, 4-Hour Chart Analysis

AUD/JPY, 4-Hour Chart Analysis

GBP/JPY, 4-Hour Chart Analysis

USD/CHF, 4-Hour Chart Analysis

USD/CNH, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 4-Hour Chart Analysis

Major Stock Indices

DAX 30 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

 

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.