The U.S. dollar took a breather from its steady descent but could not entirely escape selling pressure in Asia on Wednesday, as traders looked to the outcome of a Senate election in Georgia to drive the next move in market sentiment.
The dollar had dropped through a major support level against the Japanese yen on Tuesday and it briefly extended lower to a new 10-month low of 102.60 on Wednesday before steadying.
The euro also pulled back from a 32-month peak of $1.2328 made early in the Asia session as counting pointed to a close result in a poll that determines control of the U.S. Senate.
The Australian and New Zealand dollars kept pressure on the greenback and hovered just below multi-year highs, while sterling softened very slightly to $1.3614.
Democrats will control both houses of Congress if they win both Georgia Senate seats up for contest.
The prospect of a Democrat agenda becoming law pushed bond yields up and U.S. stock futures down in anticipation of higher government borrowing, higher taxes and more tech regulation.
However, currency markets have been more equivocal, with the likelihood of higher stimulus spending tempering the hit to sentiment and holding the dollar back from making gains.
“The dollar is sort of undecided,” said Vishnu Varathan, chief economist at Mizuho Bank in Singapore, since investors are divided whether higher yields will be eventually eroded by higher inflation or flattered by lower inflation.
“My suspicion is that the immediate knee-jerk reaction would be a slightly stronger dollar,” he said. ”(But) I don’t think this is a trade that markets will continue to chase … because I don’t think sentiment will be in a tailspin.”
Against a basket of currencies the dollar index hit a fresh 2-1/2 year low on Wednesday before firming about 0.1% to 89.575. The benchmark 10-year Treasury yields rose above 1% for the first time since March.
GBP/USD is trying to settle above the nearest resistance level at 1.3625.
GBP/USD is currently trying to settle above the nearest resistance level at 1.3625. If this attempt is successful, GBP/USD will move towards the next resistance at 1.3665.
RSI is in the moderate territory so there is plenty of room to gain additional momentum in case the right catalysts emerge. If GBP/USD manages to settle above the resistance at 1.3665, it will continue its upside move and head towards the resistance at 1.3710.
On the support side, the nearest support level for GBP/USD is still located at 1.3575. If GBP/USD declines below this level, it will head towards the next support level at 1.3540. The 20 EMA is located at 1.3530 so GBP/USD will likely receive strong support in the 1.3530 – 1.3540 area. In case GBP/USD declines below this support area, it will head towards the next support level at 1.3500.
24-hoour view: “Yesterday, we held the view that AUD is likely to ‘trade sideways between 0.7640 and 0.7720’. However, AUD surged to 0.7778 before closing on a strong note at 0.7760. Further AUD strength appears likely but overbought conditions suggest that a sustained rise beyond 0.7800 is unlikely. Support is at 0.7730 followed by 0.7700.”
Next 1-3 weeks: “We highlighted yesterday (05 Jan, spot at 0.7670) that we continue to hold same view wherein ‘there is room for AUD to advance but the major resistance at 0.7760 is unlikely to come into the picture so soon’. However, we did not quite anticipate the sudden surge in AUD that sent it to a high of 0.7778. Upward momentum has improved considerably and the next level to focus on is at 0.7800 followed by 0.7840. Overall, the current positive phase in AUD is deemed as intact as long as AUD does not move below 0.7670 (‘strong support’ level was at 0.7630 yesterday).”
After finishing the ascending wave at 1.2325 along with the correction towards 1.2283, EURUSD is expected to continue the correction to reach 1.2257 and then grow to break 1.2300. After that, the instrument may continue trading upwards with the short-term target at 1.2350 to complete this ascending wave. Later, the market may start a new correction towards 1.2000.
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