Financial market research and analysis

The US dollar pared yesterday’s losses against all of its major counterparts, as the Federal Reserve (Fed) starts its two-day policy meeting today. The market has fully factored in 25 basis points interest rate hike at this week’s policy meeting. According to the CFTC data, the USD net long non-commercial combined positions hit the highest level since August 2015. This means that if the Fed sounds cautious, or less hawkish than expected regarding the future of the monetary policy, the correction sell-off could be significant.

The EURUSD recovered a touch below the critical 1.0658 resistance (major 38.2% retracement on post-European Central Bank (ECB) sell-off). A step above this level should signal a short-term bullish reversal and pave the way to 1.0699 (Fib 50% level), 1.0740 (major 61.8% retrace) and 1.0790 (50-day moving average & minor 76.4% retrace). Failure to clear the 1.0658 resistance should resume the EURUSD’s slide toward the 1.0520/1.0518 (monthly support), before the critical 1.0460 (March 2015 low).

Cable extended gains to 1.2699, a stone’s throw below the 100-day moving average (1.2707). The UK’s inflation report, due at 09:30 GMT, should determine the mood before Thursday’s Bank of England (BoE) MPC meeting. The headline inflation is expected to have accelerated to 1.1% year-on-year from 0.9%. A strong read should revive the BoE hawks and encourage a further GBP recovery to 1.2775/1.2800 area against the US dollar.

The USDJPY bounced off 114.84 and consolidated gains above the 105.00 handle in Tokyo. Higher US yields remain supportive of a further USDJPY rise in the mid-term. Hence, there could be interesting dip buying opportunities into the short-term downside corrections. Buyers are presumed at 114.60/114.30 (100-hour moving average / 200-hour moving average).

The AUDUSD extended gains to 0.7514, yet failed to gain momentum above this level. The Fed meeting will be crucial for the carry appetite. We remain flat at 0.7500 and await for a stronger signal.

Gold market is full of top sellers, as the rising US yields and firmer US dollar are both supportive of a cheaper gold. Sellers are touted pre-$1170 (200.hour moving average).

The WTI found support at $52.75 (minor 23.6% retracement on Nov 29th to Dec 12th rally). Solid offers are yet to be cleared for a further rise toward the $58.15 mid-term resistance (major 38.2% retracement on Jun’14 to Jan’16 drop).