THE ETERNAL SOVEREIGN

Tag: forex

  • US Dollar: Key Data Once Again Driving the Market

    Markets are increasingly overlooking geopolitical issues—including developments in Venezuela and Greenland—while economic data is set to reclaim its role as the primary market driver in the latter half of the week. Today’s releases of ADP, JOLTS, and ISM services carry downside risks for the US dollar. Expectations of further rate cuts also point to softer FX performance in Central and Eastern Europe.

    USD: Data May Weigh on Momentum

    The impact of the Venezuela shock has largely dissipated. Although oil prices eased yesterday, they remain close to pre-4 January levels, equities continued to advance, and FX markets have shifted focus away from geopolitics. This reflects a post-“Liberation Day” tendency to ignore headlines and adopt a more measured outlook.

    The dollar recovered modestly yesterday, likely supported by seasonal inflows and a slight rise in front-end swap rates rather than geopolitical factors. Unless the US intensifies its stance on Greenland or intervenes again in Venezuela, markets are expected to re-center on macro data in the second half of the week.

    Today’s ISM services index is anticipated to be weak, but price action will likely be driven more by ADP (consensus: 50k) and the JOLTS job openings data. Notably, ADP has undershot expectations in seven of the past ten releases. Given our dovish view on the US labor market, we see upcoming employment data as carrying asymmetric downside risks for the dollar.

    Looking beyond today, our near-term outlook remains neutral to slightly constructive on the greenback.

    EUR: Inflation Risks to the Downside, but ECB Outlook Largely Unchanged

    German inflation undershot consensus yesterday, decelerating to 1.8% YoY (2.0% in EU harmonised terms). As our economist notes here, the disinflation appears broad-based – i.e., beyond the base effect – with prices falling in leisure, clothing, and food.

    That raises the chance of a sub-2.0% print today (consensus is at 2.0%) for the eurozone CPI flash estimate. Expectations are for the core CPI to remain unchanged at 2.4%, though; that is a measure that needs to start trending lower more decisively to revive any dovish dissent within the ECB.

    For now, implications for ECB rate expectations are likely to be limited unless inflation starts undershooting materially and consistently. By extension, the euro may not be taking many cues from the print and will remain almost entirely driven by the US dollar leg.

    Sources: Think.ing

  • The Japanese Yen remains weak amid ongoing fiscal concerns and uncertainty over the timing of the Bank of Japan’s rate hikes

    • Japanese Yen bulls stay cautious amid fiscal concerns and a generally positive risk environment.
    • Diverging expectations between the Bank of Japan and the Federal Reserve help contain further losses for the lower-yielding yen.
    • Meanwhile, subdued follow-through buying of the US dollar keeps USD/JPY capped ahead of upcoming US economic data.

    The Japanese Yen (JPY) remains under pressure against the US dollar during Wednesday’s Asian session, though significant depreciation remains limited. Key factors weighing on the yen include Japan’s fiscal concerns, a broadly risk-on market sentiment, and uncertainty around the timing of the Bank of Japan’s (BoJ) next rate hike.

    Despite this, the BoJ is expected to continue its policy normalization, creating a notable divergence from growing expectations of additional interest rate cuts by the US Federal Reserve (Fed). This divergence helps cap gains in the US dollar and offers some support to the lower-yielding yen. Additionally, speculation about possible intervention by authorities to support the yen calls for caution among those betting on further yen weakness.

    The Japanese Yen struggles to attract buyers as a mix of factors counterbalance expectations for Bank of Japan rate hikes.

    • Japan’s fiscal outlook remains a concern, especially after the cabinet approved Prime Minister Sanae Takaichi’s record ¥122.3 trillion budget. Meanwhile, uncertainty persists over the timing of the next Bank of Japan (BoJ) rate hike, as expectations that energy subsidies, stable rice prices, and low petroleum costs will keep inflation subdued through 2026.
    • BoJ Governor Kazuo Ueda stated on Monday that the central bank will continue raising rates if economic and price trends align with forecasts. He emphasized that adjusting monetary support will help sustain growth, and moderate, synchronized rises in wages and prices leave room for further policy tightening.
    • This outlook pushed yields on Japan’s rate-sensitive two-year and benchmark 10-year government bonds to their highest levels since 1996 and 1999, respectively. The narrowing yield gap between Japan and other major economies has discouraged aggressive bearish bets on the yen, especially amid speculation of possible intervention.
    • The US dollar has struggled to build on gains from the previous day due to dovish Federal Reserve expectations and concerns about the Fed’s independence under President Donald Trump’s administration. Traders are also holding back, awaiting key US economic data for clearer signals on the Fed’s rate cut trajectory.
    • Wednesday’s US economic calendar includes the ADP private-sector employment report, ISM Services PMI, and JOLTS Job Openings. However, attention will largely focus on Friday’s Nonfarm Payrolls (NFP) report, which is expected to be crucial in shaping the next directional move for the dollar ahead of Tuesday’s US consumer inflation data.

    USD/JPY’s mixed technical signals call for caution, with the key 156.15 confluence level serving as a crucial test for bullish momentum.

    The USD/JPY pair’s overnight rally confirmed support at the 156.15 confluence zone, which combines the 100-period Simple Moving Average (SMA) on the 4-hour chart with the lower boundary of a short-term ascending channel. This level is crucial—if decisively broken, it could trigger renewed bearish momentum and open the door to deeper declines.

    The Moving Average Convergence Divergence (MACD) histogram is slightly negative but contracting near the zero line, indicating weakening bearish pressure. Meanwhile, the Relative Strength Index (RSI) stands at 52, showing a neutral stance with a slight bullish bias. The rising SMA favors a buy-on-dips approach, though the subdued MACD suggests limited follow-through at this stage. RSI near the midpoint reinforces a consolidative phase within the channel.

    Initial support remains at the 156.15 confluence, while resistance is positioned at 157.15—the channel’s upper boundary. A close above 157.15 could trigger further upside, whereas failure to break this level would keep USD/JPY range-bound within the rising corridor.

    Sources: Fxstreet

  • EUR/JPY is trading with modest gains above 183.00 as traders await the upcoming Eurozone CPI report

    • EUR/JPY gains positive momentum, breaking a three-day losing streak amid a weaker Japanese yen.
    • Uncertainty over the timing of the next Bank of Japan rate hike, along with positive risk sentiment, weigh on the yen.
    • Meanwhile, hawkish bets on the ECB and a softer US dollar support the euro, providing further upside to the pair.

    During Wednesday’s Asian session, the EUR/JPY pair attracted some buying interest, ending a three-day losing streak amid a generally weaker Japanese yen. However, prices remain close to the two-week low reached on Monday, currently trading around 183.20, up just under 0.10% for the day.

    The yen continues to face pressure due to Japan’s fiscal concerns, a prevailing risk-on sentiment, and uncertainty over the timing of the Bank of Japan’s next rate hike, all of which provide support for EUR/JPY. Meanwhile, the euro benefits from a softer US dollar and hawkish signals from the European Central Bank, which showed no intention of cutting interest rates further.

    Investors widely expect the ECB to maintain a steady 2% deposit rate throughout its eight meetings this year, supported by surprisingly strong economic growth across the Eurozone in 2025. Additionally, inflation in Germany—the region’s largest economy—slowed more than anticipated, dropping from 2.6% to 2% in December. Market attention now turns to the preliminary Eurozone consumer inflation data scheduled for release later today.

    Despite this supportive fundamental backdrop for further gains in the EUR/JPY pair, caution remains warranted. Concerns that government authorities might intervene to curb further yen weakness suggest bullish traders should remain careful. Moreover, expectations that the Bank of Japan will continue its policy normalization path mean it’s wise to wait for solid follow-through buying before confirming that the two-week corrective pullback from the all-time high has ended.

    Sources: Fxstreet

  • Japanese Candlesticks

    Japanese Candlesticks are a type of price chart used in financial markets to show how an asset’s price moves over a specific period of time. They are one of the most popular tools in technical analysis because they visually display market psychology—who is in control: buyers or sellers.

    Origin

    Japanese candlesticks were developed in Japan in the 18th century, originally used by rice traders. They were later introduced to Western markets by Steve Nison in the 1990s.

    Why Candlesticks Are Powerful

    • Easy to read and interpret
    • Show market sentiment instantly
    • Help identify trend reversals and continuations
    • Work across all markets and timeframes

    Used in
    📈 Stocks
    💱 Forex
    🪙 Crypto
    🛢️ Commodities

    Common Candlestick Patterns

    Best Practice

    Candlestick patterns are most effective when combined with:

    • Trend analysis
    • Support & resistance
    • Volume
    • Indicators (RSI, MACD, Moving Averages)

    Simple Definition

    Japanese candlesticks are a visual price charting method that shows market psychology through price action.

  • Asian FX softens as markets absorb Venezuela news; yen slips despite rate hike chatter

    Most Asian currencies fell on Monday as U.S. actions against Venezuela unsettled markets, while the Japanese yen weakened despite the Bank of Japan signaling potential further interest rate hikes.

    The U.S. dollar gained from heightened safe-haven demand following Washington’s intervention in Venezuela and the capture of President Nicolas Maduro. U.S. President Donald Trump declared that the U.S. would maintain control over Venezuela until a new leader is chosen.

    Meanwhile, the Chinese yuan stood out by holding firm at its strongest level in two and a half years. This strength came after Beijing announced additional stimulus measures in late December. Moderate services activity data did little to slow the yuan’s rise, supported by a series of robust midpoint fixes from the People’s Bank of China.

    Dollar boosted by safe-haven buying in wake of Venezuela action

    The dollar index and its futures each climbed about 0.3% during Asian trading, driven by increased safe-haven demand amid rising geopolitical tensions.

    Over the weekend, the U.S. reportedly transported Nicolás Maduro to New York, where he is expected to face legal proceedings.

    President Trump also issued threats toward other nations opposing U.S. policies, including Colombia and Iran, and reiterated his calls for the U.S. to take control of Greenland.

    This military move, combined with Trump’s remarks, heightened global geopolitical uncertainty. Analysts cautioned that Washington’s actions might set a precedent for other major powers like China and Russia.

    Japanese yen continues to weaken despite BOJ rate hike signals

    The Japanese yen slipped further on Monday, with the USD/JPY pair rising 0.2%, hovering near levels last seen in early 2025.

    The yen’s weakness persisted even after BOJ Governor Kazuo Ueda reaffirmed that the central bank would continue raising interest rates as economic and inflation targets align with forecasts.

    However, Ueda’s remarks largely echoed the message from the BOJ’s December meeting, when rates were increased by 25 basis points.

    The yen remained under pressure, with USD/JPY trading within ranges that have historically prompted government intervention. Yet, traders questioned Tokyo’s capacity for further currency market intervention amid growing concerns over the country’s expanding fiscal deficit.

    Chinese yuan hits 2½-year high on stimulus optimism

    The Chinese yuan stood out as the USD/CNY pair extended recent declines, dropping 0.2% to its lowest level since May 2023.

    The yuan’s strength was driven by Beijing’s announcement of additional stimulus measures aimed at boosting consumer spending. In late December, the government unveiled a 62.5 billion yuan ($8.94 billion) program to extend subsidies on consumer electronics and other goods.

    Additionally, the People’s Bank of China supported the yuan by setting a series of strong daily midpoint rates, further reinforcing the currency’s gains.

    Private purchasing managers index (PMI) data showed that growth in China’s services sector slowed slightly in December, though it remained in expansion for the third consecutive year.

    Meanwhile, broader Asian currencies weakened as U.S. actions in Venezuela dampened risk appetite. The Australian dollar (AUD/USD) declined nearly 0.2%, while the South Korean won (USD/KRW) rose 0.4%.

    The Taiwan dollar (USD/TWD) remained flat, whereas the Singapore dollar (USD/SGD) gained 0.2%.

    The Indian rupee (USD/INR) strengthened by 0.1%, firming back above the 90-rupee level.

    Sources: Investing

  • Weekly Market Outlook: Calm Start to the New Year as US Dollar Holds Steady Ahead of Key Data

    Financial markets extended the holiday-thinned mood on the first trading day of the new year, with investors largely staying on the sidelines. Markets remain in a wait-and-see mode ahead of a data-heavy week.

    The US Dollar Index (DXY) traded near the 98.40 area on Friday, paring a significant portion of its New Year losses.

    Gold (XAU/USD) traded around the $4,320 level, surrendering all intraday gains following the New Year’s break. Expectations of lower US interest rates and elevated geopolitical tensions have continued to support precious metals in recent sessions.

    EUR/USD hovered near 1.1740 after edging lower earlier in the week, remaining under pressure as investors await upcoming economic data.

    GBP/USD traded close to the 1.3480 area, little changed during the first US session of the year.

    USD/JPY hovered around the 156.50 region, trading slightly lower on the day with limited intraday movement.

    AUD/USD traded near the 0.6690 area on Friday, posting modest gains after paring nearly half of its intraday advance.

    Key Economic Data Ahead: Upcoming Releases Set to Shape Market Sentiment

    Over the coming days, investors will closely watch US employment figures and global inflation data, which are expected to influence central bank policies.

    • Monday: The US Institute for Supply Management (ISM) releases the Manufacturing Purchasing Managers’ Index (PMI) for December.
    • Tuesday: Germany’s Harmonized Index of Consumer Prices (HICP) and Australia’s Consumer Price Index (CPI) are scheduled for publication.
    • Wednesday: The US ADP Employment Change report (December), ISM Services PMI (December), and the preliminary Eurozone HICP (December) will be released.
    • Thursday: The US Trade Balance for October and Consumer Credit data for November are due.
    • January 9: The highly anticipated US Nonfarm Payrolls (NFP) report for December and the preliminary January Michigan Consumer Sentiment Index will be published.

    These releases are expected to set the tone for market direction and provide clues on the pace of monetary tightening by major central banks.

    Sources: Fxstreet