Currency Analyst since 2010

Trading plan for January 26

 By Elizabeth Belugina

At the start of the week traders were reminded that uncertainty isn’t over and that the markets haven’t fully stabilized yet. Selling pressure on oil renewed as Iraq's oil production hit a record in December. Demand for the euro and Japanese yen increased, while commodity currencies suffered.

The US will release consumer confidence figures at 15:00 GMT. Traders also await the upcoming meeting of the Federal Reserve on Wednesday to see if the Fed somehow reacts to the increased volatility.

EUR/USD is holding above 1.0800. However, the expectations of additional monetary stimulus from the European Central Bank should limit the upside. The strategy remains the same: we sell the euro on rallies with small targets (remember that the euro is still bought as a safe haven). To get to 1.0950 the pair has to overcome resistance at 1.0860. Below 1.0780 the pair will likely drift to 1.0700. German Ifo business climate came below expectations (107.3 vs. 108.5) falling to 11-month low. The ECB President Mario Draghi will speak at 18:00 GMT on Monday.

GBP/USD returned above 1.4228 (2010 low) and is consolidating. The pair formed a candle with a long upper shadow on Friday. Resistance at 1.4340/60 looks rather strong, and if the pound returns below 1.4228, we will target 1.4125. A rise above 1.4340/60 is needed to confirm an interim bottom and open the way to 1.4500/50. The Bank of England’s Governor Carney will speak at 10:45 GMT. Last time he sounded bearish. Low oil prices also affect the cable negatively.

USD/JPY faces resistance at 118.70. If the pair manages to settle above this level, it will open the way up to 119.70/120.00. Declines should be limited by 117.60/50 and 117.00. Traders await the Bank of Japan’s meeting at the end of the week expecting at least some hints on the coming increase in monetary stimulus. Look for the buying opportunities.

AUD/USD ran into resistance in the 0.7000 area and will likely ease down to 0.6935 and 0.6895 ahead of 0.6835. Australian dollar will be waiting for Australia’s inflation data due on Wednesday, and the release is expected to be weaker than in the previous time that will be bearish for the Aussie. 

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