USD softens up as US yields pause their rise

The USD corrected a bit lower against its counterparts yesterday as US yields seemed to pause their rise yesterday before restarting it during today’s Asian session. Overall, the market seems to have solidified its expectations for a tighter monetary policy and currently has fully priced in a rate hike of 25 basis points in the Fed’s March meeting. The market expectations have not allowed for the US stockmarkets to focus on the earnings season and continued to drive the main US stockmarket indexes lower. Tech sector heavy Nasdaq seems to be leading the drop lower as despite the pause in the rise of US yields, the pressure is still substantial.

Gold’s price took advantage of the drop of US yields and marked considerable gains yesterday while it may have enjoyed also some safe-haven inflows given the tensions in Ukraine and the possibility of Russia invading the country as US President Biden has warned. Today we note the release of the US initial jobless claims figure, which is expected to drop and if so, could provide some support for the USD as it would imply a tightening of the US employment market. At the same time, we also get the Philly Fed business index which is expected to rise implying a greater degree of economic activity for the area and thus could also provide some support for the greenback.

Gold’s price jumped more than $30 higher yesterday, breaking the 1832 (S1) resistance line, now turned to support. We tend to maintain a bullish outlook for the precious metal, given that the RSI indicator is near the reading of 70, yet the precious metal’s price could be prone for a correction lower. Should buyers actually maintain control over the precious metal, we may see it breaking the 1850 (R1) resistance line and aim for the 1870 (R2) level. Should the a correction lower take place we may see gold’s price breaking the 1832 (S1) support lien and aim for the 1815 (S2) once again.

CBRT’s aggressive easing could take a break today

The Turkish Lira seems to have had some slight support against the USD yesterday, ahead of CBRT’s interest rate decision later today, overall though we must note that in the past month TRY stabilised somewhat after the wide volatility presented in late December. We must note that the bank had performed a rate cut in its last meeting, however the aggressive easing policy of the bank could take a break in today’s meeting by remaining on hold to see whether the Lira could remain stable and inflation to be curbed. On the flip side, should the bank continue with another rate cut in the today’s meeting, we may see TRY losing considerable ground especially against the USD and EUR.

On a more fundamental level we must note that the Central Bank of the Republic of Turkey (CBRT) has reached a swap deal with the United Arab Emirates central bank of almost $5 billion. The agreement would mean that the CBRT could tap the foreign currency to boost its FX reserves which are currently at very low levels, thus easing somewhat the strains of the bank to defend the Lira. The news were another sign of warmer relations between the two former arch enemies, which could be beneficial for the Lira.

USD/TRY remained in a sideways motion between the 13.9300 (R1) and the 13.1600 (S1) levels and we would expect it to continue currently, yet CBRT’s interest rate decision could alter that. Should the bulls take over, we may see the pair breaking the 13.9300 (R1) resistance line and aim for the 14.6300 (R2) level. Should the bears take over, USD/TRY could break the 13.1600 (S1) line and aim for the 11.9000 (S1) support level.

Other highlights for today and early tomorrow

Today we note the release of Norgesbank’s interest rate decision, a number of EUR related releases and for oil traders the release of the weekly EIA crude oil inventories figure while during tomorrow’s Asian session we get from Japan Decembers’ CPI rates.

XAU/USD H4 Chart