The dollar resumed gains on Friday against other major currencies ahead of the first NFP data of the year. Let’s look at what the charts are printing ahead of the important event.
Spotlight will be on the US’s first employment data of the year on Friday. Meanwhile, the dollar has been active early in the London session as it resumes the resurgent week. The dollar index has jumped back above the 90 mark. The US politics dominated the headlines this week.
US Politics
Finally, the US President has conceded and promised a smooth January 20 Biden’s inauguration after the Capitol hill chaos. Also, Biden and the Democrats are set to control the executive and legislative arms of the government which has encouraged more risk. Wallstreet stock indexes have hit fresh highs.
Despite the political crises in the US this week, the market seems to be priced-in as it expects an eventual resolution. Biden’s win would mean more stimulus and perhaps a tax-hike for the rich as he promised before the November election. Aside from this, it seems once Biden settles down in his new office, the economic face-off with China would resume. In his early days and weeks, the market will start to weigh on his external geopolitical approaches which are generally expected to be less fierce than what we are used to in the last four years.
Covid-19 and Vaccines
Aside from the US politics, the Covid19 situation still remains a risk-factor for traders and investors. The situation at hand is that, the speed of vaccination is much slower than the current virus spread rate after new strains in the UK and South Africa were detected. Hospitals will soon get overwhelmed before the vaccines go round if there is no quick close-up. The US dollar might be banking on this to get some breath before resuming the downward slope.
Macroeconomics – Non-farm Payroll day
While the above are the medium-term risk drivers, the Non-farm payroll data coming later today is the main intra-day focus. Market consensus sets a 60k target against the 245k previous due to the Covid effect in December. The deviation between the market expectation and the previous data is quite wide. There is a very high chance that the actual deviation from the consensus today would be wide as well. If actual is 100k or more, the USD bulls will charge further rallies to complete what could be the biggest weekly gain since October. Below 60k actual is expected to come with far less deviation. This means that any dip will probably be very much limited before the bullish correction takes over. Therefore, there is a bigger short-term/intra-day opportunity to the upside.
TECHNICAL ANALYSIS
Let’s continue from where we stopped in the last technical analysis update. We expected a significant dollar bounce across the board. The market seems to be flowing in the direction. With a better than expected NFP, the surge should continue.
Dollar Index bounces above 90
The corrective bounce from 89.4 is intensifying and is already encroaching into the territory of the previous triangle pattern. DXY will most likely go deeper into the pattern to 90.5 and even 91. However, the long-term trend remains bearish.
GBPUSD bears looking for a breakout?
With the Brexit done, it’s not been very good for the UK. Since the turn of the year, the country has to cope with a new strain of the virus following vaccine administration in December. Nationwide lockdown started on January 5 and has altered the post-brexit Cable’s bullish development. As the chart above shows, a break below 1.353 would attract more bearish traction toward 1.34.
USDJPY fierce bullish move to continue?
The dollar-yen has jumped over 150 pips in the last 48 hours. This was very much expected in the last update. After an extended bearish run for months, the currency pair completed a ending diagonal pattern ‘pregnant’ of a smaller ending diagonal pattern. The result is just as we can see it – a big reverse reaction. At least a 3-wave bullish run toward 105 is expected for this pair.
Will COMDOLLS flow higher after the current dip?
CAD, NZD and AUD are beta risk-on commodity FX. The current long-term risk-on market outlook will continue to support these currencies in the medium and long term. However, as their charts show, a minor dip is ongoing on Aussie and Kiwi and a corrective bounce on Loonie.
The Aussie current dip could continue to 0.77 or 0.765 before the next rally. Similar scenario is building up on NZDUSD. The Kiwi bears could challenge 0.72 before the next bounce. However, for USDCAD, the CAD employment data coming later today could make the currency pair the biggest or slowest mover today. Eventually, a bounce to 1.2775-1.28 is very much high on the cards for the Loonie. Aside the macroeconomics, the bullish oil price could resist higher bullish development on the USDCAD.
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