January Bearish Trends: 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 indicates that this trend has closed lower 66.7% of the time. However, early 2023 saw a deviation from this pattern, recording a 1.5% gain. Currently standing at -0.7% monthly, with two weeks left, the pair hints at a possible decline.
Support of yield differentials
Despite historical bearish trends, EUR/USD is showing resilience, thanks to a notable increase in the EU-US two-year spread. This rise, driven by changing rate expectations, supports the euro against the US dollar. Market optimism over multiple Fed rate cuts in 2024 has impacted the 2-year yield, although it remains at a premium compared to Europe's 2.5%. However, skepticism remains, leaving room for a possible price revision.
EUR/USD Technical Analysis: A Closer Look
The EUR/USD daily chart reveals intriguing insights. Although the upward trajectory of the two-year EU-US spread could push the pair higher, challenges in breaking above the 1.10 level persisted since the beginning of the year. A bearish divergence at the RSI (14) on the daily chart and the formation of a possible bear flag indicate a cautious market. Traders can look at short positions in case of a break of cycle lows or explore countertrend opportunities towards 1.10, setting a stop above the August high. A viable short-term target is 1.08.
Current market conditions and factors at play
As of now, EUR/USD maintains a tight trading range, hovering around 1.09-1.10 levels for the sixth consecutive day. Investors are grappling with the absence of a definitive catalyst, and last week's mixed US inflation data failed to provide clarity on the Federal Reserve's rate cut intentions. Amid high expectations of a rate cut by the Federal Reserve in March, skepticism persists about the viability of such cuts.
Looking ahead: macroeconomic data and geopolitical factors
Future market movements depend on upcoming macroeconomic data, specifically its impact on inflationary pressures. Although widely discussed, the possibility of a Fed rate cut in March faces uncertainty. Failure to materialize such cuts could disappoint investors, favoring the euro and potentially strengthening the US dollar. Geopolitical tensions, particularly in the volatile Middle East, add an additional layer of unpredictability.
USD/JPY Technical Outlook: Short-Term Forecast
USD/JPY's short-term trends depend on US retail sales, Japanese inflation data and central bank comments. Favorable consumer spending in the United States could delay a Fed rate cut, while weaker inflation figures from Japan could keep rates in negative territory. If bets on a Bank of Japan pivot ease, USD/JPY could aim for a return to 146.
USD/JPY Price Action Analysis
On the daily chart, USD/JPY is holding below the 50-day EMA, but holding above the 200-day EMA, indicating a short-term bearish but long-term bullish stance. A break of the 50-day EMA would push the bulls towards the 146.649 resistance level. Conversely, a break below the 144.713 support level could trigger a decline to the 200-day EMA.
As traders await crucial macroeconomic data and navigate geopolitical uncertainties, the EUR/USD and USD/JPY pairs are at critical junctures. Technical indicators offer valuable information, but market sentiment and external factors will undoubtedly play a key role in determining the direction of these currency pairs in the coming weeks.
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