US stimulus: President Joe Biden is on the road, trying to promote his proposed $1.9 trillion coronavirus relief package to the public while Democrats continue advancing the bill in Congress. The prospects of massive government spending and potential inflation have pushed investors away from bonds and the resulting higher yields are supporting the dollar.
EUR/USD has dipped under 1.21 despite optimism ahead of Mario Draghi’s first speech as Italy’s Prime Minister. GBP/USD has dropped under 1.39, with sterling unable to benefit from Britain’s successful vaccination campaign.
Higher returns on US debt mean that yieldless gold is on the back foot with XAU/USD slipped under $1,800. On the other hand, oil prices remain elevated as a storm in Texas has cut US crude output by a third and as residents suffer rolling blackouts.
Stock markets have slowed their gains but have yet to turn south. Some focus on US stimulus as a growth engine and higher yields only a side effect. US retail sales figures for January are set to show an increase in spending after two months of declines.
The Federal Reserve’s meeting minutes are due out late in the day and they will likely show that most members are dismissing any inflationary pressures as transitory or even a blessed phenomenon.
Bitcoin has been extending its gains after peeking above $50,000 on Tuesday. Other cryptocurrencies are more volatile. Dogecoin, touted by Elong Musk, is on the back foot.
Speeches by Fed officials and Canadian Consumer Price Index statistics are also scheduled for Wednesday.
EUR/USD managed to settle below 1.2100 and is testing the support at 1.2080.
EUR/USD declined below the 50 EMA at 1.2105 and is testing the next support level at 1.2080. If this test is successful, EUR/USD will head towards the next support level which is located at 1.2060.
A move below the support at 1.2060 will open the way to the test of the next support level at 1.2040. In case EUR/USD declines below this level, it will head towards the next support at 1.2000.
On the upside, the previous support at the 50 EMA at 1.2105 will likely serve as the first resistance level for EUR/USD. If EUR/USD gets above the resistance at 1.2105, it will head towards the next resistance at 1.2130. This resistance level has been tested many times in recent trading sessions, and EUR/USD did not manage to settle above 1.2130. In case EUR/USD settles above the resistance at 1.2130, it will head towards the next resistance at 1.2155.
24-hour view: “While we expected USD to ‘advance further’ yesterday, we were of the view ‘the month-to-date high of 105.76 could be just out of reach’. The subsequent strength exceeded our expectation as USD blew past 105.76 and soared to 106.06 (before extending its gains after NY close). The rapid rise appears to be overdone and while further USD strength is not ruled out, a sustained rise beyond 106.35 is unlikely (next resistance is at 106.70). Support is at 105.85 followed by 105.65.”
Next 1-3 weeks: “Yesterday (16 Feb, spot at 105.40), we highlighted that ‘shorter-term momentum has improved considerably and a break of 105.60 would not be surprising’. We added, ‘if USD breaks the month-to-date high of 105.76, it would shift the focus to 106.00’. While our shift to a positive stance was timely, we did not quite anticipate the rapid manner by which USD surged to 106.06. Upward momentum has improved further and USD could extend its gains to 106.35, possibly as high as 106.70. The current positive outlook for USD is deemed intact as long as it does not move below 105.00 (‘strong support’ level was 104.80 yesterday).”
24-hour view: “We highlighted yesterday that ‘upward momentum has improved further and a break of 0.7795 would not be surprising’. We added, ‘a clear break of the next major resistance at 0.7820 appears unlikely’. While our view was not wrong, we did not anticipate the sharp and swift sell-off from 0.7805. The rapid overnight drop has picked up considerable momentum and AUD could extend lower to 0.7720. The next support at 0.7685 is unlikely to come into the picture. Resistance is at 0.7765 followed by 0.7790.”
Next 1-3 weeks: “We have held a positive view in AUD since early last week. Yesterday (16 Feb, spot at 0.7785), we highlighted that ‘outlook for AUD is still positive’ and ‘the next resistance above 0.7820 is at 0.7850’. AUD subsequently rose to 0.7805 before staging a sudden and sharp sell-off. Upward momentum has been waned quickly and the odds for further AUD strength have diminished considerably. From here, a break of 0.7720 (no change in ‘strong support’ level) would indicate that 0.7805 is the extent of the recent AUD strength. In view of the vastly weakened momentum, a break of 0.7720 would not be surprising.”
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