Talking Points
- USD Index holding 11713/746 support region.
- GBP/USD stabilizes, EUR/GBP fails at resistance...a 'tell?'
- See the February Forex Seasonality report and the implications for the majors.
On balance, several of the more liquid currency pairs have made little progression up or down over the past week, but that doesn't mean volatility hasn't been present. Choppy ranges may have been persisting, although it appears we may be coming close to a 'decision moment' in several pairs that we've been tracking through the start of the year.
To start, the USDOLLAR Index has shown signs of abating in its seven-month long bull trend, and it's worth noting that its four-week/daily 21-EMA has now risen into a crucial zone of support that was carved out with highs and lows forming going back to the start of January. A dissection of the index is important to see which are the moving parts, and which are simply being pushed along by the general direction the buck is moving in.
While much attention has been drawn to EUR/USD, perhaps its best that we turn our focus to GBP/USD. GBP/USD has not only been at the behest of broader capital flows around bond market speculation and the ECB's QE, but also its own metrics of declining interest rate expectations: the market has pushed back the timing of the first BoE rate hike to at least H1'16, if not later.
Nevertheless, GBPUSD continues to show resiliency within its range carved out over the past five weeks, and may possibly face a significant test of its daily 34-EMA, which has capped price going back to late-July (with numerous tests in between). When we look around the GBP-spectrum, there is evidence mounting that Sterling may be searching for some footing - which, if is the case, then they may be early opportunities in two instruments we've already been engaged with this year, EUR/GBP and GBP/CAD.
Beyond the short-term signs of nascent British pound strength, a focus on what AUD/USD does over the next day or so is worthwhile. Overnight AUD/USD found resistance at a particularly interesting level (0.7850), the January 23 high as well as the daily 8-EMA. The daily 8-EMA has served as resistance twice recently, on January 22 and January 28. If this downtrend is to persist, now would be the ideal time for the next swing lower.
See the above video for technical considerations in EUR/USD, GBP/USD, EUR/GBP, GBP/CAD and AUD/USD.
--- Written by Christopher Vecchio, Currency Strategist