The next significant resistance around 0.6350 is probably out of reach for the time being, but the Australian dollar (AUD) could break over 0.6305. In the long term, UOB Group’s FX experts Quek Ser Leang and Lee Sue Ann observe that the present price movement is probably the beginning of a rebound phase that may eventually reach 0.6350.
The current momentum will diminish below 0.6190
24-HOUR VIEW: “We anticipated that the AUD would “move in a 0.6165/0.6220 band” yesterday when it was at 0.6195. AUD soared to a high of 0.6287 rather than trading in a range. The overbought conditions are probably going to be outweighed by the impulsive momentum. The AUD could break over 0.6305 today if 0.6205 (the minor support is at 0.6240) is not broken. For the time being, the next significant resistance at 0.6350 is probably out of reach.
View for the next one to three weeks: “We observed yesterday, January 20, at 0.6195, that the recent ‘buildup in upward momentum seems to have faded.'” “For the time being, AUD is likely to trade in a 0.6140/0.6245 range,” we said. Our decision to switch to a neutral position came at a bad moment because the AUD rose and broke the important resistance level at 0.6245. Given the present market behavior, a recovery phase that may eventually reach 0.6350 is probably just getting started. For the momentum to continue, the AUD must not drop below 0.6190.
USD: ING says volatility is here to stay
FX markets saw significant volatility on the first day of Donald Trump’s administration. Media claims that Trump will not apply tariffs on day one caused the US dollar (USD) to plummet ahead of the inauguration. The move might have been made worse by the significant dollar long positioning into the event and possibly some thinner liquidity because of the US vacation. According to Francesco Pesole, FX analyst at ING, Trump announced the creation of the External Revenue Service, which is responsible for collecting tariffs and levies, in a series of executive orders issued on the first day.
The markets are at least cautiously optimistic
Additional executive orders ended several of previous President Joe Biden’s green energy initiatives and proclaimed a national emergency on energy and at the border. But later in the day, Trump declared that by February 1st, he will probably put 25% tariffs on Canada and Mexico. As a result, the dollar recovered, wiping out daily gains in CAD and MXN. However, markets are at least cautiously confident that indiscriminate global tariffs won’t be implemented all at once, which is why DXY is trading about 0.7% lower than Friday’s close. Naturally, the currencies that are getting the most support are those that are exposed to China and Europe. If Trump implements the tariff, there is now more opportunity for CAD and MXN to decline.
“Outgoing Prime Minister Justin Trudeau is now leading Canada; he is set to be replaced by a Liberal Party leadership race, and early elections are probably in the works. According to reports, Canadian officials had already announced preparations to retaliate against US taxes on goods that would harm US producers more severely than they would harm domestic consumers. We calculate that the risk premium for USD/CAD is just over 2%. That is smaller than in prior weeks, suggesting that the 25% tariff risk may still be undervalued by the markets and providing the pair with additional upside potential. Although Canada will also announce CPI statistics today, the currency will probably not be much affected. A USD/CAD rise north of the 1.45 region is anticipated for now”.
Dollar net longs are probably still stretched even after yesterday’s positioning readjustments. A week ago, the CFTC net dollar positioning compared to reported G10 currencies was at +24%, the highest level since June 2019, according to our calculations. As a result, European currencies and their proxies from China can hold onto their gains for a little while longer. This week, Trump’s first executive orders will be the main focus, thus data will take a backseat. In addition, the Federal Reserve is currently in a period of silence before its meeting on Wednesday of next week. The odds are still in favor of a stronger dollar, therefore there will probably be a lot of “headline trading” and short-term disturbance. As market volatility rises, this could affect FX solutions for proprietary trading firms. This successfully incorporates the term while maintaining the flow. If you require any other changes, please let me know!