The US dollar is under pressure on Thursday, triggered by investors’ concerns about global economic growth, the blockade of the US government, and the still unresolved trade dispute between the US and China.
Trade pressures are the most dominant factor for investors’ moods now and will drive market fluctuations. According to the analysts, the investor risk appetite may rise after lowering the fears of blocked funding of the US government and improving the trade relationship between the two largest economies in the world.
The partial blockage of US government funding for 34 days has lowered investors’ moods. Concerns about global economic growth have also depressed the risk appetite of investors. On Monday, the International Monetary Fund (IMF) cut its forecast for global growth for 2019 and 2020, citing China’s and the Eurozone’s expected economic slowdown, and warned that failure to resolve trade strains could further destabilize the world economy.
During the day, the US Dollar Index fell to 96.06 points. The greenback is coming up after briefly testing fresh weekly lows in the 96.00 area, although a clear breakout of the key resistance area in the mid-96.00s still remains elusive. The US Dollar Index still needs to overcome the 96.50-96.80 are, where are located the recent peaks, the key 55-day SMA and the 23.6% Fibo retracement of the September-December up move. A move higher should put the US Dollar Index to YTD highs around 97.00 back on the investors’ radar.
The Australian dollar was the major driver of the Asian session, traded with a decrease of 0.22% to 0.7126 USD after the Australian National Bank announced it would raise interest rates on mortgage loans by 12 to 16 basis points. Earlier, the Australian dollar was booming due to robust employment statistics.
The Australian dollar started the day with a strong footing, advancing against the greenback up to 0.7166 USD, on the back of a solid employment report which showed that the Australian economy added 21.6K new jobs in December, better than the 16.5K expected. The unemployment rate decreased to 5.0%, although the participation rate was also down to 65.6% from 65.7%.
Trading around its daily lows, the AUD/USD pair has detached from the congestion of moving averages in the 4 hours chart, all of them in the 0.7130-0.7140 USD price zone, usually a sign of directional strength, in this case, to the downside. Technical indicators in the mentioned chart hold within negative levels, with the Momentum directionless but the RSI also backing a downward extension as it maintains its bearish slope near 31. The AUD/USD pair has also broken below 23.6% of its latest bullish run at 0.7125 USD, the immediate resistance. The bearish case will be stronger on a break below 0.7070 USD, a strong static support level.
In the Asian trade, the Japanese yen was slightly higher against the US dollar, to 109.51 JPY, after weakening by 0.2% against green money in the previous session.
On Wednesday, the Bank of Japan kept its monetary policy unchanged. But Japan’s financial regulator has lowered its inflation forecast and warned of rising economic risks from trade protectionism and the slowdown in global demand.
USD/JPY traded somewhat higher on Thursday after it hit support fractionally above the upside line drawn from the low of the 3rd of January, the day after the “flash crash”. That said, the rate seems to be finding a ceiling near the 109.90 JPY and 110.20 JPY levels, between which the 200-EMA lies. Therefore, although technically the picture looks somewhat positive, we prefer to wait for a break above 110.20 JPY before we get confident on further upside extensions.
Such a break would confirm a forthcoming higher high on the 4-hour chart and may encourage the bulls to add to their positions, something that may set the stage for the 111.40 JPY area, defined by the high of the 26th of December. If that zone fails to halt the price from drifting further north, then we may see the bulls putting the 112.15 JPY zone on their radars.
All eyes are on the EUR/USD pair, as investors expect the European Central Bank (ECB) to declare its monetary policy later on Thursday, but it is almost certain that there will be no change.
The single European currency was slightly higher, to 1.1383 USD. The Euro has lost about 1.6% of its value in the past two weeks, as traders expect the ECB to maintain the monetary policy to support the economy for an extended period of time. But low inflation, as well as lower-than-expected economic activity in Germany and France, could cause the ECB’s President Mario Draghi to declare a longer delay.
If the central bank cuts its growth or inflation forecast and Mario Draghi focuses on weaker growth, we can see the EUR/USD pair to fall to 1.12 USD.
At the moment, the pair is down 0.58% at 1.1316 USD facing the next support at 1.1306 USD (2019 low January 3) followed by 1.1269 USD (monthly low December 14, 2018) and finally 1.1215 USD (2018 low November 12).
On the flip side, a break above 1.1396 USD (10-day SMA) would target 1.1415 USD (21-day SMA) en route to 1.1442 USD (38.2% Fibo of the September-November drop).