Now that we are in the Fed blackout period there is a distinct change in the number of headlines being pumped out. The day was full of WEF and Eurogroup meetings but no real market-moving news. Tomorrow should be a more exciting London session and then we get the US traders back, so it will be interesting to see if they continue the trade directions from today or do a turnaround Tuesday
Market Wrap
It has been a quiet trading day as expected due to the US session being on holiday as the states observe Martin Luther King day. There have also been some high-level meetings within the Eurogroup and at the highly influential World Economic Forum. But little scheduled news.
The one group of news this afternoon centered around Canada and as a result, the Canadian dollar has continued to show the highest amount of relative strength to its peers.
Forex traders would have done well to go long or add to their CADJPY long positions as the yen is currently the weakest of the G10 currencies. The next significant level will be the 92.00-93.00 price which tests the previous swing high within the rising channel. Momentum is leading the price action higher as the 20, 50, and 200-period EMAs are all pointing north. The CADJPY has risen by 0.63% today and is up 3.77% over the last month.
In November, Canadian manufacturing sales rose for a second consecutive month, gaining 2.6% to $63.1 billion on higher sales in 18 of 21 industries, led by non-metallic minerals, petroleum and coal products, and primary metals.
The report by Statistics Canada showed the volume of goods sold increased 1.9% in November in constant dollars. Industrial Product Prices increased 0.8% month over month in November. During the same period, manufacturing production continued to be affected by supply chain issues in many industries, including transportation, chemical, and food. Floods in British Columbia further exacerbated the problem.
With the lack of positive news out of Europe this morning and with the ZEW data likely to come in worse than expected tomorrow, the US dollar index has caught a bid off support today, although it is currently only as high as a retest of the broken trendline. There could be a further surge higher into the old support which should act as resistance at which point more sell orders could get the DXY down to the daily 200 EMA.
The slight uptick in the US dollar has also added weight to the GBPUSD which is struggling to keep its head above old resistance. Alexander Boris de Pfeffel Johnson a.k.a the UK Prime Minister is coming under extreme attack from his own backbenchers and the opposition parties. Though one minister today came out in defense of the PM. Education Secretary Nadhim Zahawi said the PM is not in danger over his handling of the No.10 parties. It's hard to judge if this could set enough cogs in motion to oust the UK leader but one thing is certain. The longer the uncertainty builds the more the markets will become jumpy. A break back below the daily 200 EMA and it may be enough for cable to come off harder.
I think the PM is probably going to shrug this off and ride it out. His ego seems too big to let this get in the way of his dream job. The fact that 85% of retail traders are also shorting the pound against the euro also gives me some optimism for the pound.
The EURGBP is clearly in a downtrend with a lot of market structure and dynamic resistance above. The UK is moving towards ending COVID-19 restrictions and opening up the economy in full in less than 10 days' time, whereas parts of Europe are clearly struggling with the disease and are also causing division amongst citizens with the COVID-19 passports and mandates. This suggests the European Union has a lot more going against it in terms of COVID than the UK does and therefore will be economically worse off. Tomorrow's ZEW sentiment data will shed more colour on what is being discussed at the company leadership level.