January Downtrends: A Historical Perspective
January is typically a bearish month for the EUR/USD pair, revealing an average return of -1.2% since 1975. Historical data suggests that this trend has closed 66.7% lower throughout. However, the beginning of 2023 saw a deviation from this pattern, recording gains of 1.5%. The pair is currently tracking -0.7% for the month, with two weeks to go, the pair is indicating a potential downtrend.
Support from yield spreads
Despite historical downward trends, the EUR/USD pair is showing resilience, thanks to a notable increase in the spread between the EU and the US over two years. This rise, fueled by expectations of changing interest rates, is supporting the euro against the US dollar. Market optimism about multiple Fed rate cuts in 2024 has weighed on the two-year yield, although it remains at a premium compared to the European yield of 2.5%. However, uncertainties remain, leaving room for potential repricing.
EUR/USD Technical Analysis: A Closer Look
The daily chart of the EUR/USD pair reveals interesting insights. While the upward trajectory of the EU-US spread over two years may push the pair higher, challenges to a break above 1.10 have persisted since the beginning of the year. Bearish divergence on the RSI (14) on the daily chart and the formation of a potential bearish flag indicate caution in the market. Traders may look to go short on a break above the cycle lows or explore countertrend opportunities towards the 1.10 level, placing a stop above the August high. There is a viable near-term target of 1.08.
Current market conditions and influencing factors
As of now, the EUR/USD pair is maintaining a narrow trading range, hovering around 1.09-1.10 levels for the sixth day in a row. Investors are grappling with the absence of a final catalyst, and last week's mixed US inflation data failed to provide clarity on the Federal Reserve's intentions to cut interest rates. Amid high expectations of an interest rate cut by the Federal Reserve in March, doubts remain about the feasibility of such cuts.
Looking to the future: macro data and geopolitics
Future market movements depend on upcoming macroeconomic data, specifically its impact on inflationary pressures. Although widely discussed, the possibility of a rate cut by the Federal Reserve in March faces uncertainty. Failure to achieve such cuts could frustrate investors, favoring the euro and possibly strengthening the US dollar. Geopolitical tensions, especially in the turbulent Middle East, add an additional layer of unpredictability.
USD/JPY Technical Outlook: Short-Term Outlook
USD/JPY's short-term trends depend on US retail sales, Japanese inflation data and central bank comments. Favorable US consumer spending could delay a Fed rate cut, while weak inflation numbers from Japan could keep interest rates in negative territory. If bets on the BOJ pivot diminish, USD/JPY could target a return to the 146 level.
Analysis of the price movement of the US dollar/Japanese yen
On the daily chart, the USD/JPY remains below the 50-day EMA but is holding above the 200-day EMA, indicating a near-term bearish but long-term bullish situation. A breakout from the 50-day moving average would enable bulls to reach the 146.649 resistance level. On the contrary, a break below the support level of 144.713 could lead to a drop to the 200-day moving average.
As traders await crucial macroeconomic data and face geopolitical uncertainty, EUR/USD and USD/JPY are at critical junctures. Technical indicators provide valuable insights, but market sentiment and external factors will undoubtedly play pivotal roles in determining the direction of these currency pairs in the coming weeks.
