- The euro jumped back to monthly highs on Thursday and benefited from the hawkish ECB minutes which indicated we are coming to an inflection point in the central bank’s QE program.
- The dollar weighed further against a basket of six majors by weaker S. PPI which clocked the first decline in one and half years and reached a low of last week.
- We will have several major macro data from U.S. including CPI and retail sales in December both due at 2130 BJT today.
The euro climbed sharply while the dollar declined to the low of last week on Thursday 11 January due to the unexpected hawkish tone of the ECB minutes. European Central Bank said it could gradually shift its forward guidance and continue to taper its quantitative easing program. After that, we saw U.S. PPI MoM for December which came in at 2.3%, slipped for the first time in one and half years and lower than both its previous reading and consensus forecasts. The unexpected bad PPI casted shadows on the U.S. December CPI at 2100 BJT today when we will also see U.S. retail sales in December. A negative inflation measure could significantly reduce expectations of future rate hikes by Fed and in turn keep the dollar in the sustained downward path.
The dollar index (DXY) reached last week’s lows after dropping sharply yesterday. Some traders have been confused by its volatile movements on the week. Its downtrend remained intact on the 4 hour and daily chart. Whether or not the dollar could fall further will depend on the results of two major U.S. reports tonight.
（DXY H4 chart）
As to non-U.S. currencies, the euro turned higher again after a MA reversion/corrective decline. A break above its monthly highs will extend the uptrend. The British pound rallied sharply and reversed the weakness on the week after finding support at its daily EMA30. Whether or not the sterling could extend rallies will be important to observe. The Aussie dollar rallied and created a new high from last Friday in a choppy trading. The commodity currency also hit a high of 13 October 2017, although we should be on the lookout for a potential pullback in the short term.
（GBPUSD H4 chart）
Take a look at precious metals now. The gold climbed and came close to its weekly highs. Given that short term moving averages turned higher again in the divergent mode while its long term moving averages strength accelerated slightly, the yellow metal could push up further. However, we should look at the potential implications both from inflation and retail sales report in U.S. tonight.
（Gold H4 chart）
By JasonZou —— Chief Analyst of AvaTrade China
Disclaimer: The views and opinions expressed in this article are those of the authors and for the purpose of reference only, and shall not be relied upon by investors in making any trading decisions.