USD strengthens on solid data

The USD strengthened against a number of its counterparts as US financial data showed the picture of a solid economy ahead of the US employment report. Specifically, despite the trade deficit of the US widening as expected, the ADP employment figure rose instead of dropping as expected and the Services PMI also outperformed market expectations as it rose. The overall picture showed that during January private payrolls picked up while at the same time economic activity for both manufacturing and non-manufacturing sectors seems to be picking up as well. Please bear in mind that the corona virus worries still linger on and could affect the markets should there be fundamental news, other than that, the market seems to want push ahead. We could see the USD being more data driven before the US employment report for January is released, as the market positions itself. USD/JPY continued to rise yesterday as per our previous analysis, breaking the 109.70 (R1) resistance line, now turned to support. As the upward trendline incepted since the 3rd of February remains intact, we could see the pair continuing to rise. Should the pair’s long positions continue to be favoured by the market, we could see it aiming if not breaking the 110.30 (R1) resistance line, which would mark a new high since the 20th of September 2019. On the other hand, should the pair come under the selling interest of the market, we could see it breaking the 109.70 (S1) support line and aim for the 109.00 (S2) support level.

Some choppy trading for the pound

The pound experienced some choppy trading yesterday as it strengthened during the European session, while corrected lower later on both against the USD as well as against the EUR. The pound got a boost in the European session due to the better than expected reading of the Services PMI for January which surpassed the preliminary one. The indicator is considered as a leading indicator for the largest sector of the UK economy and managed to reach levels last seen in September 2018. The release seemed to provide BoE justification for remaining on hold in its latest session, as the outlook for the UK economy improves further. During the American session though, the pound drifted south relenting prior gains as worries about the fiscal boost being lower than expected increased. Worries increased as reports surfaced about disagreements within the UK government for the actual size of the planned large fiscal stimulus which was promised by Johnson’s in the pre-election period. Nevertheless, we maintain a flat outlook for the pound, which could remain under pressure. GBP/USD experienced some choppy trading yesterday yet relented any gains made in the European session, drifting below the 1.3015 (R1) support line, turning it to a resistance line. We maintain a bearish outlook for the pair, as it failed to gain from the Services PMI’s better readings and continued to drift lower. Should the bears maintain control over the pair, we could see it aiming if not breaking the 1.2820 (S1) support line. On the flip side should the bulls take over, we could see it breaking the 1.3015 (R1) resistance line and aim for the 1.3170 (R2) resistance level.

Other economic highlights today and early tomorrow

During the European session, we get from Germany the industrial orders growth rate for December and later on from the Czech Republic, CNB’s uncertain interest rate decision is to be released. In the American session we get the US initial jobless claims, while in tomorrow’s Asian session, we get Japan’s All household spending growth rate for December. As for speakers ECB’s De Guindos, ECB President Christine Lagarde, Dallas Fed President Kaplan, RBA’s Governor Philip Lowe and Fed’s Quarles speak.

USD/JPY 4 Hour chart