USD hammered in the lead up to important ECB meeting

ECB President Mario Draghi

What Happened Yesterday

The USD slumped to a fresh three-year low after the U.S. Treasury secretary said he welcomed a weaker USD just as traders worried about U.S. President Donald Trump’s protectionist agenda.

Speaking at the World Economic Forum in Davos on the eve of Trump’s arrival at the Swiss resort, Treasury Secretary Steven Mnuchin said the weaker dollar was positive for U.S. trade.

This is quite significant given that this is the first time in a very long time that a Treasury secretary has spoken against a strong dollar. Robert Rubin will be spitting chips.

Mnuchin’s comments provided a fresh trigger for USD selling and raised questions about whether a weaker U.S. currency could provide a long-term impetus for the economy.

USD bears were also emboldened by Trump’s executive order imposing steep import tariffs on washing machines and solar panels, a move condemned by China and South Korea, analysts said.

The USD index, was down 0.99% at 89.23, slipping below 90 for the first time since December 2014.

The dollar has been pressured for months by the view that the Federal Reserve is no longer the only central bank seeking to tighten monetary policy as growth in other regions, Europe in particular, picks up speed.

The EUR was up 0.84% to 1.2450 and USDYEN was down more than 1% hitting a low of 108.95.

Sterling jumped above $1.42 as strong British employment data and broad-based dollar weakness prompted investors to ramp up long positions in the pound.

Traders now await the European Central Bank’s meeting for any signals that policymakers are becoming concerned with the recent rally in the Euro as well as any tapering plans to their stimulus program.

Central Bank Sentiment

Today’s ECB meeting is turning into a MAJOR event with even more importance then usual because of where the currencies are right now.

Technical Set Up – What’s Happening with the Majors

AUDUSD

Climbing on general USD weakness. More topside to come.

Check our detailed AUDUSD Analysis

NZDUSD

Drilled lower after weak CPI data; tough trade from here

Check our detailed NZDUSD Analysis

USDJPY

Broke down through major support; Further downside to come!

Check our detailed USDJPY Analysis

EURUSD

Charging on back of weak USD; focus on ECB meeting today

Check our detailed EURUSD Analysis

GBPUSD

Brexit optimism & strong UK data driving Sterling higher

Check our detailed GBPUSD Analysis

USDCHF

Sliding lower on general USD weakness; focus is on ECB meeting today

Check our detailed USDCHF Analysis

USDCAD

Lower on USD weakness & stronger Oil prices

Check our detailed USDCAD Analysis

Today’s Fundamental Drivers

What’s the Plan for Today?

OK traders we’ve finally got clear as day direction on the USD … so if you’re not already short USD it’s time to start looking for retracement levels to get short.

But BEWARE volatile trading conditions especially around any economic data releases and the ECB meeting later today.

With the currencies all hitting multi month/yearly highs against the USD, we’re now left with charts with very few trendlines.

That unfortunately creates extremely volatile markets as traders focus in on the economic data releases as their main entry levels.

We could see some crazy movements should the ECB make some significant changes to their future tapering plans. But it may go wild if the ECB mentions anything about the Euro being too high.

Now is not the time to be getting short USD. Look for major retracement levels or at the very least scan through the majors and see if you can find some longer term trendlines to work with.

Either way trading is going to be loose so protect yourself …..that means smaller trade sizes. Don’t worry you’ll still make us much because the currencies are moving further.

Today’s Focus – Major Currencies in Play

You need to follow the economic data releases & best technical set ups to work out where the majority of action and interest will be.

EURUSD

Technical Set Up: Support 1.2355, 1.2325 & major support 1.2275

Fundamental Driver: ECB Rate Decision & Statement

Potential Strategy: Momentum is clearly up so any positive comments may see Euro rally 250+. We only have downside support so it’s going to be a tricky trade.

Check our Next Best Trades list for full details.

Plan the Trade, Trade the Plan!

The idea of our “Market Insight” is to give you some guidance into your daily preparation.

Your Daily Analysis needs to become habitual – For full guidance on our daily routine click here.

Make sure you don’t waste unnecessary time in front of the screens.

Remember you need to be fresh, confident and ready to trade and by sitting aimlessly in front of your screens you will become stale and uncertain.

The key to your sucess: Isolate the opportunities that work for you and focus on them.

Don’t worry about things that you can’t make…..chasing them will only cause problems (tiredness & irrational behaviour will take over).

Tune up your charts & get ready to trade…..see you in the 247 Trade Zone!

Brad

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