USD is under mild downward pressure

24-HOUR VIEW: “Following Monday’s choppy price action, we indicated yesterday that USD ‘could continue to trade in an erratic manner, probably in a range of 154.50/156.00.’ We did not expect USD to drop to a low of 154.16, closing at 154.33 (-0.27%). The decline has resulted in a slight increase in downward momentum. Today, we expect USD to edge lower, but given the mild downward momentum, any decline is unlikely to break below the major support at 153.70. On the upside, a breach of 155.00 (minor resistance is at 154.70) would suggest that the mild downward pressure has faded.”

1-3 WEEKS VIEW: “There is not much to our update from yesterday (04 Feb, spot at 155.20). As indicated, USD ‘is likely to trade in a 153.70/156.70 range for the time being.’ Looking ahead, if USD were to break and remain below 153.70, it could trigger a sustained drop.”

• EUR/USD rises above 1.0400 as the risk-premium of the US Dollar eases amid diminishing fears of a global trade war.
• The ECB is expected to continue reducing interest rates amid confidence that the disinflation trend towards the 2% target is intact.
• Investors await the US ADP Employment Change and the ISM Services PMI for January. 

EUR/USD advances above 1.0400 in Wednesday’s European session. The major currency pair gains as the US Dollar (USD) extends its losing streak for the third trading day.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, declines to near 107.50 as it loses some risk premium, with investors assuming that the scope of a trade war won’t be wider.

Market participants expect the trade war to be mainly between the United States (US) and China as the latter has retaliated against 10% levies by imposing tariffs on various US exports, including farm equipment, some autos, and energy items such as Coal and Liquefied Natural Gas (LNG).

With the rest of the world, investors expect US President Donald Trump will use tariffs as a tool to have a dominant position in negotiating deals with trading partners. President Trump’s postponement of 25% tariffs on Canada and Mexico stemmed from expectations that tariffs are more of a political maneuver.

Meanwhile, the next trigger for the US Dollar (USD) will be the US Nonfarm Payrolls (NFP) data for January, which will be released on Friday. The official employment data is expected to influence speculation about the Federal Reserve’s (Fed) monetary policy guidance.

In Wednesday’s session, investors will focus on the US ADP Employment Change and the ISM Services Purchasing Managers Index (PMI) data for January.

Daily digest market movers: EUR/USD gains sharply despite Euro’s underperformance

• EUR/USD moves higher at the expense of the US Dollar as the Euro (EUR) underperforms against its major peers amid firm expectations that the European Central Bank (ECB) will continue with its policy-easing spree, given that officials are confident about inflation sustainably returning to the central bank’s target of 2% this year.
• In Wednesday’s European session, ECB Vice President Luis de Guindos said in an interview with the Slovak newspaper Hospodarske Noviny that he sees “inflation approaching the ECB’s target” but expects “little uptick in next few months on energy”. When asked about for how long the ECB will continue reducing its borrowing rates, de Guindos said, “Even if our current trajectory under the current circumstances is clear, nobody knows the level at which interest rates will end up.”
• Last week, the ECB reduced its Deposit Facility rate by 25 basis points (bps) to 2.75% and guided that the monetary policy is still restrictive. Traders expect the ECB to cut interest rates three times more in the next three policy meetings.
• Meanwhile, market participants are cautious about the Eurozone outlook amid fears that the European Union (EU) will be the next on the list of US President Trump on whom he can threaten to impose tariffs actively. Over the weekend, Trump said that tariffs would definitely happen with the European Union because “they’ve really taken advantage of us”.

Technical Analysis: EUR/USD rebounds to near 1.0400

• USD/CAD falls sharply below 1.4300 as the Canadian Dollar continues to advance on US President Trump’s decision to postpone tariffs on Canada.
• BofA expects US tariff threats to China will continue to persist until a new USMCA deal gets negotiated.
• Investors await the US ISM Services PMI and the ADP Employment data for December.

The USD/CAD pair extends its losing streak below the key level of 1.4300 in Wednesday’s European session. The Loonie pair weakens as the Canadian Dollar (CAD) continues to gain, given that United States (US) President Donald Trump delayed his orders to impose 25% tariffs on Canada for 30 days. President Trump suspended orders after Canada agreed for criminal enforcement at borders to stop the flow of drugs and undocumented immigrants into the US.

A suspension in tariff orders on Canada has forced market experts to revise the Canadian economic outlook, who were accounting for the impact of levies. While the Canadian Dollar has surged this week against the US Dollar due to a relief rally from Trump’s decision to put the tariff plan on hold, analysts at Bank of America (BofA) expect the rally is unlikely to sustain as US tariffs threats and headlines on Canada to persist until a “new United States-Mexico-Canada Agreement (USMCA) deal is negotiated”.

This week, investors will focus on the Canadian employment data for January, which will be released on Friday. The employment report is expected to show that the economy added 25K workers, significantly fewer than 90.9K addition seen in December. The Unemployment Rate is estimated to have accelerated to 6.8% from the former release of 6.7%.

The labor market data will influence market expectations for the Bank of Canada’s (BoC) monetary policy outlook. Currently, traders expect the BoC to cut interest rates by 25 basis points (bps) to 2.75% in the March meeting.

Meanwhile, the US Dollar (USD) underperforms its major peers as the market sentiment turns cheerful amid expectations that Trump’s tariff agenda would be less fearful than expected.

On the economic front, investors will focus on the US ADP Employment Change and the ISM Services PMI data for January, which will be published in Wednesday’s North American session.

• AUD/USD rallies to near 0.6300 as the market sentiment becomes favorable for risk-sensitive assets.
• The risk-appetite of investors improves on the assumption that the scope of the trade war will be limited between the US and China.
• US-China trade war and RBA dovish bets would limit the Australian Dollar’s upside.

The AUD/USD pair surges to near the key level of 0.6300 in Wednesday’s European session. The Aussie pair strengthens as the risk appetite of investors has improved amid expectations that the trade war won’t be global and will be limited between the United States (US) and China.

S&P 500 futures are slightly down in European trading hours but have recovered their losses significantly. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, declines sharply to near 107.50, the lowest level in more than a week.

Market participants are anticipating a lethal trade war between the US and China as the latter has retaliated with levies of 15% on coal and LNG and 10% for crude oil, farm equipment, and some autos against US President Donald Trump’s decision to impose 10% tariffs on them.

Though a steady market environment has offered some relief to the Australian Dollar (AUD), investors expect the relief would be short-term as Australia would be the victim of the US-China trade war, being a leading trading partner of China.

Apart from that, firm market expectations that the Reserve Bank of Australia (RBA) will pivot to policy normalization from the policy meeting on February 18 would also weigh on the Australian Dollar.

In Wednesday’s session, investors will focus on the US ADP Employment Change and the ISM Services Purchasing Managers’ Index (PMI) data for January.

USD trades broadly lower

“There is little fresh news to explain the US Dollar’s (USD) slide. Rather, investors are ditching long USD positions as trade war risks ease, at least for the moment. Global stocks are soft and major bond markets are firmer, with Treasurys underperforming slightly. Commodities are trading a little lower overall on the session. Generally, soft stocks, relatively firmer US yields and weak commodities would all tilt risks towards a somewhat stronger USD. But that’s not the case today.”

“This is perhaps where the preponderance of long USD positioning evident in recent data helps explain price action. Also, technical signals are leaning quite obviously bearish for the DXY on the week so far, given the scale of the sell-off, but it’s hard to buy into the idea of a sharp USD fall with trade war risks clearly still seemingly high. Beyond recent developments, President Trump has yet to confront European allies with tariffs—something that he has promised is ‘absolutely’ coming—and investors should not get too comfortable with the appearance of Trump rolling over easily after minimal concessions from Mexico and Canada won temporary reprieves.”

“More volatility seems very likely across markets in the coming weeks as the Trump team tries to reset the global trade picture. US data releases this morning include ADP jobs, final Services and Composite PMIs and the January Services ISM data. Fed speakers include Barkin, Goolsbee, Bowman and Jefferson.”

• NZD/USD refreshes weekly high near 0.5700 as receding global trade war risks have improved the safe-haven demand.
• The USD strives to gain ground on the back of upbeat US ADP Employment data for January.
• The NZ economy will also face the consequences of the US-China trade war.

The NZD/USD pair posts a fresh weekly high near 0.5700 in Wednesday’s North American session. The Kiwi pair gains as the US Dollar (USD) has remained under pressure due to receding risks of a global trade war.

Investors expect the trade war to remain between the United States (US) and China as the latter has imposed tariffs on a few items from the US economy in retaliation to President Donald Trump’s decision of a 10% levy on all imports from China.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, refreshes weekly low to near 107.40. However, the Greenback has got some buying interest after the release of the United States (US) ADP Employment Change data, which showed that the private sector hired 183K workers in January, higher than estimates of 150K and the prior release of 176K, revised significantly higher from 122K.

Meanwhile, the outlook of the New Zealand Dollar (NZD) remains uncertain as the impact of a trade war between the US and China will also be borne by the New Zealand economy, being one of the leading trading partners of China.

On the monetary policy front, market participants expect the Reserve Bank of New Zealand (RBNZ) to continue reducing its cash rate to reduce deepening risks of inflation undershooting their target of 2%.

NZD/USD rebounds strongly from the support zone plotted around 0.5500 on a weekly timeframe. However, the outlook of the Kiwi pair is still bearish as the 20-week Exponential Moving Average (EMA) near 0.5800 is sloping downwards.

The 14-week Relative Strength Index (RSI) attempts to return inside the 40.00-60.00 range. A fresh bearish momentum would trigger if the RSI fails to do the same.

The Kiwi pair could decline to nears round-level supports of 0.5400 and 0.5300 if it breaks below the 13-year low of 0.5470.

On the flip side, a decisive break above the November 29 high of 0.5930 could drive the pair to the November 15 high of 0.5970 and the psychological resistance of 0.6000.

NZD/USD weekly chart

• EUR/USD climbs to 1.0420 on Wednesday, extending its upward trend.
• The pair surges past the 20-day SMA, reinforcing a stronger short-term outlook.

The EUR/USD pair continued its bullish advance on Wednesday, rising by 0.39% to 1.0420 as buyers maintained control. With the latest price action, the pair has decisively climbed above the 20-day Simple Moving Average (SMA), a key resistance level that had previously limited upside attempts. This breakout signals a potential shift in sentiment, favoring further gains in the short term.

Momentum indicators align with the pair’s continued strength. The Relative Strength Index (RSI) has risen sharply to 53, signaling increased buying interest and a stronger bullish bias. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints rising green bars, reflecting a sustained increase in momentum.

For EUR/USD to build on its recent gains, the next resistance levels to watch stand at 1.0450 and 1.0485. A break above these levels could open the door for a move toward 1.0520. On the downside, the 20-day SMA, now acting as support, is positioned near 1.0365, followed by a stronger support zone around 1.0350. Holding above the 20-day SMA will be key for the pair to sustain its positive trajectory.

EUR/USD daily chart