- Market action suggests traders are afraid of their own shadows
- Hesitant action may spill into next week if we're relying on clear signals
- JPY is testing interesting levels in some of the crosses
Markets seem paralysed by fear as Trump prepares for "coronation". Images: iStock
By John J Hardy
Currencies have been churning viciously in recent sessions, with most pairs unable to mount sustained directional moves, although USDCAD did manage a steep two-day rally on the surprisingly dovish Bank of Canada meeting on Wednesday. Elsewhere, the euro refused to stay lower after what was seen as a dovish European Central Bank meeting and EURUSD refuses to make a notable directional commitment as it has generally staggered higher towards the final structural resistance of note – the 1.0800-50 level.
Markets are clearly awaiting the start of Donald Trump's presidency later today with great trepidation, although it is entirely unclear how specific the new president will get in his inaugural address, and the churning, hesitant action may spill into next week if we are relying on clear fundamental signals, which may not be forthcoming.
If the USD continues to weaken, we're rapidly running out of room and and the USD bulls may be forced into a fully fledged capitulation, which has yet to take place at current levels. If the USD firms, on the other hand, the gains could come quickly as frustrated bulls have been without a case, ironically since the Fed's rate hike in December, which marked the end of the most recent USD advance.
We continue to see the 1.0800-50 area in EURUSD as the key structural resistance that needs to remain in place to keep the structural focus to the downside, with limbo awaiting on a weekly close above. Traders looking for a trigger to reestablish a bearish outlook will at least want yesterday's lows to fall on the close today and for quick progression lower next week.
USDJPY - weekly
Worth noting that the daily Ichimoku cloud (not shown on this weekly chart) has rapidly ascended, such that the top is now near the heavily trafficked area just below 114.00 that held up the action on the way down and some months back as well. Bulls will at least want this week's lows below 113.00 to hold to keep the focus higher for now. Note that at current levels or higher, we have a bullish weekly candlestick, so let's see where the action takes us after Trump's speech later today.
We suspect this pair will show directional sympathy with USDJPY, but it is interesting to note the action over the last couple of days skimming along the upper bound of the Ichimoku cloud. Note the attempt above the 200-day moving average today as well.
EURSEK has turned tail after only a brief head-nod at recent divergent moment – suggesting the bears have a case below the 21-day SMA or at least yesterday's highs for a try at new lows for the cycle – perhaps to 9.25.
AUDNZD may finally decide whether its interesting attempt to get something going to the upside blossoms into something bigger next week, with both Australia and New Zealand set to release quarterly CPI data on Wednesday and Thursday, respectively. The next big trigger is the 1.0750 area, which could open the path to the huge 1.1300+ area.
– Edited by Clare MacCarthy
John J Hardy is head of FX strategy at Saxo Bank