Dollar celebrates 2022 with gains amid positive new year mood

[MongiIG]

Dollar celebrates 2022 with gains amid positive new year mood

  ForexJan 03, 2022 

 

 

 

© Reuters. FILE PHOTO: A money changer counts U.S. dollar banknotes at a currency exchange office in Ankara, Turkey November 11, 2021. REUTERS/Cagla Gurdogan

LONDON (Reuters) - The dollar ticked up against its major rivals as an upbeat market mood on Monday lifted European equities and government bond yields for the first day of trading of 2022.

But with London, Europe's main FX trading centre closed for a market holiday, volume was expected to remain limited.

While the surge in coronavirus cases caused by the Omicron variant continued to disrupt global travel and public services, hopes were high that the economic damage of stringent lockdowns can be avoided.

The dollar index, which measures the greenback against major peers, rose 0.12% to 95.79, while the pan-European STOXX 600 hit a new record high and U.S. stock futures pointed to a positive session on Wall Street.

The Japanese yen retreated briefly to 115.36 per dollar, its lowest since the end of November but gradually climbed to 115.15.

The euro slipped 0.21% to $1.1345, while Germany's 10-year benchmark yield briefly jumped about four basis points to -0.138%, its highest level since November.

Supply bottlenecks held back German manufacturing activity in December, but manufacturers with full order books expressed confidence that these will ease in 2022, a survey showed.

"German manufacturers are confident about growth prospects in the coming year, though much still depends on an improvement in the supply situation", said Economics Associate Director Phil Smith, commenting on Monday's IHS Markit PMI survey.

In the broader euro zone, manufacturing activity remained resilient as factories took advantage of an easing in supply chain constraints and stocked up on raw materials at a record pace.

Heavy issuance of euro zone government bond was also expected to put upward pressure on yields.

Markets are expecting the European Central Bank to stick to a dovish stance while the U.S. Federal Reserve and the Bank of England tighten monetary policy.

Sterling dipped 0.05% at $1.3517.

Turkey's annual inflation jumped far more than expected to 36.08% year-on-year in December, the highest since September 2002, reflecting a plummeting lira late in 2021.

 

The lira was trading at 13.4 against the dollar after the data, 1.7% weaker on the day but off an early low of 13.92. It shed 44% of its value last year after a volatile November and December. [L8N2TJ0NC)

Bitcoin dipped 0.5% to $47,104.

[RCtrader]

[eurusd] The bulls have been defeated. If they were serious about making an upwards move then they had to keep the price from falling. Too many trendlines have been broken. Now, the target is 1.1190 or lower. 

EURUSD H4 Chart

[MongiIG]

13 hours ago, RCtrader said:

[eurusd] The bulls have been defeated. If they were serious about making an upwards move then they had to keep the price from falling. Too many trendlines have been broken. Now, the target is 1.1190 or lower. 

EURUSD H4 Chart

Hi @RCtrader

EURUSD Overdue for a Technical Break

Jan 3, 2022, John Kicklighter, Chief Strategist. DailyFX

EURUSD TALKING POINTS:

The first trading day of the New Year championed a strong Dollar rally, but that move was likely a seasonal adjustment

Despite the lurch in volatility for the Greenback, EURUSD and many other majors have essentially moved back into range

Range trading could work between 1.1400 and 1.1200, but the eventual and inevitable break would carry more potency

We have opened the new trading year with some unusual FX volatility that is likely a byproduct of the unusual liquidity and seasonality conditions. Not all of the world’s major financial market centers were open for trade on January 3rd as some countries (including many in Asia) observed the New Years day holiday on the Monday. That partial drain of speculative participation likely compounded the typical turbulence that comes at the very open of the year. Year-end conditions typically see large changes in portfolios for rebalancing, accounting and strategy adjustment purposes. Naturally, the Dollar tends to play a big role in this capital movement. And went the current reverses to start the New Year, we can see equally abrupt activity.

Across the Dollar-based majors, we could see the bullish charge behind the Greenback – though there was notably less traction with emerging market currency crosses compared to the developed world majors. This unreliable charge has made some interesting technical adjustments for the likes of the AUDUSD, GBPUSD and USDCAD; but I am most interested in EURUSD. This pair was on the verge of a bullish breakout out at the end of last week/month/year when it crossed above the 50-day simple moving average for the first time in 76 trading days. That said, I was not at all convinced of the move given it was happening in the Bermuda triangle of liquidity. The swift reversal Monday shows what we are really dealing with. Now, this large -0.8 percent drop doesn’t offer any more credibility for intent of trend than the move on December 31st, but this one represents a check back into range.

Chart EURUSD with 50 and 100-Day SMAs, 30-Day ATR and Historical Range (Daily)

Chart Created on Tradingview Platform

We don’t yet have the market backdrop to determine whether the next committed trend from this benchmark cross is going to bullish or bearish, and range trading is a viable strategy so long as the boundaries hold. The range I will be watching is 1.1400 to the upside and 1.1200 as support and we are presently dead in the center of that span. For potential, I would be more interested in playing the range off resistance given the prevailing trend and given there is an ascending triangle with a floor near 1.1265 – a break of which could override even the strong Fibonacci confluence at 1.1200.

While there is strong range conditions to consider, the eventual – and inevitable given enough time – break from this congestion will interest me far more. The 30-day ATR (average true range as a volatility measure) and same duration historical range percentage suggest breakout pressure is high. Should we hold to the prevailing EURUSD bear trend, a break of 1.1200 will likely find serious hesitation around 1.1000 where trendline support dating back to 2000 lands – not to mention it is a round number. It may not ultimately stop the market, but it will slow its progress. Alternatively, breaking 1.1400 is a move back into a range established over years. The absolute upside is 1.2200; but I prefer to play to milestones along the way at 1.1500 and 1.1700 among other levels. I see this as a hybrid range and breakout strategy benefactor rather than outright in either, and certainly not trend trading.

Chart of EURUSD with 20-Week SMA and Net Speculative CFTC Futures Positioning (Weekly)

Chart Created on Tradingview Platform

[RCtrader]

I guess it depends on ECB. If they are going to taper but somewhat slowly and refuse to increase interest rates then I expect the bears will try to push the rate lower. 🤨

[MongiIG]

16 hours ago, RCtrader said:

I guess it depends on ECB. If they are going to taper but somewhat slowly and refuse to increase interest rates then I expect the bears will try to push the rate lower. 🤨

Hi @RCtrader

CENTRAL BANK TAPERING GAINS MOMENTUM

Global central banks are no longer just talking about reducing stimulatory purchases and raising interest rates – some have already started to put these words into action. Below are some of the recent adjustments:

• ECB – Reducing monthly PEPP bond purchases
• BoC – Reduced weekly net purchases of government bonds by C$1 billion
• RBNZ – Halting pandemic induced bond buying program in July 2021
• Norges Bank – Due to raise interest rates in September 2021

CENTRAL BANKS FACTORING IN RATE HIKES

Source: Refinitiv

 

Jan 1, 2022 |  Richard Snow, Analyst. DailyFX

 

[MongiIG]

Just now, MongiIG said:

Hi @RCtrader

CENTRAL BANK TAPERING GAINS MOMENTUM

Global central banks are no longer just talking about reducing stimulatory purchases and raising interest rates – some have already started to put these words into action. Below are some of the recent adjustments:

• ECB – Reducing monthly PEPP bond purchases
• BoC – Reduced weekly net purchases of government bonds by C$1 billion
• RBNZ – Halting pandemic induced bond buying program in July 2021
• Norges Bank – Due to raise interest rates in September 2021

CENTRAL BANKS FACTORING IN RATE HIKES

Source: Refinitiv

 

Jan 1, 2022 |  Richard Snow, Analyst. DailyFX

 

Euro Q1 2022 Fundamental Forecast: Still No Rate Hike, Still No Euro Recovery.

Now, nothing is certain in the world of central banking but the forward guidance from the European Central Bank suggests that early in 2022 it will reduce bond buying via its Pandemic Emergency Purchase Program and perhaps balance that by increasing buying via its older Asset Purchase Program: essentially making no change in monetary policy overall.

Later in the year though, perhaps in the second quarter, the ECB will begin cutting its monthly asset purchases until by year-end the programs end completely. This indirect tightening of monetary policy could then be followed by an interest rate increase early in 2023. This is, of course, no certainty, and the ECB is not a great communicator with the markets. However, it’s a scenario that would leave the ECB way behind many other central banks in raising rates and would therefore likely lead to more losses for the Euro.

Full article on Euro Q1 2022 see the forum post below:

 

[MongiIG]

2 hours ago, MongiIG said:

Hi @RCtrader

CENTRAL BANK TAPERING GAINS MOMENTUM

Global central banks are no longer just talking about reducing stimulatory purchases and raising interest rates – some have already started to put these words into action. Below are some of the recent adjustments:

• ECB – Reducing monthly PEPP bond purchases
• BoC – Reduced weekly net purchases of government bonds by C$1 billion
• RBNZ – Halting pandemic induced bond buying program in July 2021
• Norges Bank – Due to raise interest rates in September 2021

CENTRAL BANKS FACTORING IN RATE HIKES

Source: Refinitiv

 

Jan 1, 2022 |  Richard Snow, Analyst. DailyFX

 

[MongiIG]

On 04/01/2022 at 16:57, RCtrader said:

I guess it depends on ECB

Hi @RCtrader

EUROZONE INFLATION CONTINUES TO CLIMB

The Euro has lagged behind other developed nations as far as expected rate hikes are concerned as the European Central Bank (ECB) continues to provide support for its member states. Presiding over monetary policy for the European Union (EU) is not a simple task as each country has a different economic profile, experiences differing levels of economic activity (GDP) and differing levels of inflation. Therefore, the ECB has the unenviable task of setting a ‘one size fits all’ policy that will hopefully benefit most if not all member states.

However, inflation data in the last 24 hours has revealed that inflation is not just a concern for the larger member states - mainly Germany - but for the Union as a whole. Today’s flash Eurozone CPI figure of 5% reinforces the uptrend in rising inflation which the ECB will look to discuss in their first scheduled meeting of the year on January the 21st.

EU Flash CPI

Source: DailyFX economic calendar

Today’s data print follows on form yesterday’s German inflation figure which beat not only the forecast and previous figure, coming in at 5.3% vs forecast of 5.1%

German Inflation rate (YoY)

As a result, there has been a noticeable turnaround and recent uptick in German Bund yields towards the zero mark.

German Bund 10 Year Yield

Chart prepared by Richard Snow, Refinitiv

 

Written by Richard Snow for DailyFX.com. 7th Jan 2022