USDJPY and EURGBP

A week after the FED began to mention tapering QE and stimulus the Bond market has produced quite an upset in markets. The markets are beginning to price in a rise in inflation and a reduction in monetary easing and this is creating a counter to the more bullish tones that have been present since March. The FED speakers over the past week have been divided in their outlook but here is a general sense that tapering is back on the agenda. “Fed's Evan, Kaplan & Bostic are all open to an end of 2021 taper. However, Clarida and Mester said it wasn't likely this year and Barkin did not enter into that conversation. On Tuesday, Bullard said that they were 'not close to tapering' and Rosengren says a 'little while away' from bond buying debate. So a pretty mixed bag on the end to tapering”, according to one report. There has been a selloff in Gold and a move higher in the Treasury yield curve while US equities are still focussed on the up-coming fiscal stimulus package. The bond market and Gold took another hit overnight as President-elect Biden’s stimulus plan was reported to be in the region of $2 Trillion according to CNN. This would add further pressure to the FED to taper and hike rates. President elect Biden is due to speak to the nation this evening and is expected to outline his stimulus plans. The US House of Representatives has voted by 232 against 187. Ten Republicans voted to impeach the President. Thus President Trump has become the only US President in history to be impeached twice. The Senate is not expected to hold a trial until after President-elect Biden takes office next week. However, there has been support among republican Senators for the conviction of the President, many of whom are angry that he incited a protest last week that led to a violent attack on the Capitol building. The Japanese 225 has closed higher by 0.85% The Hang Seng is trading higher by 0.7% and the Shanghai Composite is down -0.4%.  Gold is trading at 1843.00 while USDJPY is trading at 104.000. 

The ECB Monetary Policy Meeting Accounts will be released in the afternoon today. US Unemployment Claims are expected to come in at 785K from 787K last week. The FED Chair is expected to speak at a webinar hosted by Princeton University and audience questions are expected.

USDJPY

The USDJPY is consolidating after it found resistance at the 105.678 level last month and went in search of support with a move that took price down to 103.180 area. Support was broken around the 104.000/103.850 area followed by 103.500. The loss of this area opened the way to 103.300, with further support at the 103.150 level, which is followed by 103.180 and the 103.000 area. These levels have been tested and broken with the 102.600 area is now acting as support. Price has climbed back up to 104.400. The 104.000/103.900 is acting as support. The 102.900/102.800 area may also provide some support on a break of 102.750 followed by the 102.500. This is in turn followed by potential support at 102.275. The 102.000 level may be used in price break this potential support with a view to testing down into 101.000.

In the short term, the 104.200 area is being tested as resistance and price is consolidating at 104.000. The potentially resistive 104.000 area is followed by 104.480/104.500, 104.750 and 105.000. The 105.500 area is acting as resistance followed by 106.000, 106.500 and the former support levels at 106.680/106.630. Above the 107.000 round number, the 107.680/107.600 area, may be used as resistance, followed by 108.000 and 108.480, with the 109.500 area above. A rally above the 109.500 level may seek to take price up to engage the 109.700 area of resistance from December which is followed by the 109.850/110.000 area. This area has acted on price in the past and was retested as resistance in February, with a breakout to the high at 112.227. The lower high at 111.700 may also act as resistance. A break above this area may open the path to the pair potentially attempting to gain a foothold above this resistance and establish a base to engage the 113.000 area. A break above this level may seek to test the 114.000 level followed by the potential resistance at 115.000.

EURGBP

The EURGBP chart is showing that the pair has broken down from the March high, 0.9500 level and is currently trading around 0.8893 after finding support at 0.8865 and resistance at 0.9230. The pair tested 0.9292 early last month and has created lower highs at 0.9230 and 0.9217. The pair is now consolidating, after the breakout above the trend line stalled just above 0.9200. Support has been re-established at the 0.8865 area as the key support as the June low and is now where the trend line is positioned. There is potentially a temporary floor under the price action 0.8867 followed by the trend line at 0.8824. Support at 0.8813 is followed by the 0.8750 area and the 0.8700 level. A loss of this level may push price down to 0.8660 level. Support may be seen at 0.8645 followed by 0.8620/0.8600. Below this level, the 0.8500 area may be supportive again, followed by the 0.8412 area. The low at 0.8276, from December 2019, and then the 0.8250 level may also be used as potential support for the pair. 

Resistance may be used at 0.8930 followed by the 0.9000 round number level. Above this 0.9050/0.9065 may provide resistance followed by 0.9084 area. The area above 0.9100 may continue to offer resistance, with a focus on 0.9150 followed by 0.9177. The 0.9200 round number may provide further resistance followed by the 0.9235 area. A move back higher from there targets the 0.9250 area, followed by the higher high at 0.9275. Above this area the 0.9290/0.9300 area comes into play followed by the August high around 0.9323. The current high at 0.9500 remains the level to beat for buyers. A break higher may seek to test the 0.9550/0.9560. Beyond this, the potential resistance area at 0.9620 might be used ahead of the 0.9700 level. The next area of interest may be found at 0.9720, followed by 0.9750 which may also be used as resistance to any potential move higher, while above the area the 0.9800 area may further resist attempts to push price up to the 0.9900 level. The round number level may also come into play at 1.0000. 

Philip Konchar

Core Spreads

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