USD edges higher

The USD edged higher against its counterparts yesterday, continuing the upward motion initiated since the end of 2023. No major news on monetary policy from Fed Board Governor Barr yesterday and markets tend to maintain their aggressive rate-cut policy expectations from the Fed for the current year. The market’s attention is still placed on the release of the US CPI rates for December, due out tomorrow, and for today we expect fundamentals to continue leading the way for the markets given the lack of high-impact financial releases stemming from the US.

US stock markets on the other hand continued to send out mixed signals with S&P 500 edging lower, Nasdaq marking some gains and Dow Jones weakening. We see the case for the uncertainty of the markets to be maintained over the next 24 hours yet a possible rise of US yields and a rebound of oil prices may weigh on US equities markets.

Oil prices got some support yesterday as the API crude oil inventories figure showed a wider drawdown than what was expected and implying that the US oil market tends to remain tight. It should be noted that oil production in the US was expected to hit a record high in 2024 yet at a slower pace according to EIA, as efficiency tends to offset a drop in oil rig activity. Oil traders may be interested in the release of the weekly EIA crude oil inventories figure later in today’s American session for a possible confirmation of the US oil market’s tightness.

Back in the FX market, the Aussie remained relatively unchanged against the USD despite the November CPI rates slowing down. Attention of AUD traders now turns towards November’s trade data and a possible widening of the Australian trade surplus could provide some support for the Aussie given how export-oriented the Australian economy is.

AUD/USD maintained a sideways motion just below the 0.6725 (R1) resistance line. We note how the price action has come under pressure in a symmetrical triangle, and for the time being, we tend to expect the sideways motion to be maintained given that the RSI indicator remains near the reading of 50 implying a rather indecisive market, yet the pair may break out at either direction. Should the bulls get control, we may see AUD/USD breaking the 0.6725 (R1) resistance line and aiming for the 0.6820 (R2) resistance level. Should the bears take over, we may see the pair breaking the 0.6620 (S1) support line and aiming for lower grounds.  

EUR traders on the other hand are expected to keep an open ear for ECB Vice President De Guindo’s speech later today in the European session and should the ECB policymaker maintain the moto for high rates for longer, the common currency may get some support as the market’s expectations for extensive rate cuts by the ECB in the current year will be contradicted.

On a technical level, the EUR remained relatively unchanged against the USD, with EUR/USD staying between the 1.1010 (R1) and the 1.0890 (S1) levels. Given the movement since the 3^rd of January and that the RSI indicator continues to run just below the reading of 50, we tend to maintain our bias for the sideways motion to continue until the market decides on the direction of the pair’s next leg. Should a buying interest be expressed, we may see the pair breaching the 1.1010 (R1) resistance line and aiming for the 1.1135 (R2) resistance level. Should the bears tale over, we may see EUR/USD breaching the 1.0890 (S1) support line and aiming for the 1.0740 (S2) support level.     

Other highlights for the day:

Today in the European session, we note the release of Sweden’s GDP rate for November and Norway’s CPI rates for December.

EUR/USD H4 Chart

Support: 1.0890 (S1), 1.0740 (S2), 1.0615 (S3)

Resistance: 1.1010 (R1), 1.1135 (R2), 1.1275 (R3)

AUD/USD H4 Chart

Support: 0.6620 (S1), 0.6515 (S2), 0.6400 (S3)

Resistance: 0.6725 (R1), 0.6820 (R2), 0.6895 (R3)

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