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USD/JPY

The USD/JPY broke its bearish trend line last week, before staging a sharp rally. The trend line had been in place since rates peaked in October at just below the 152 handle. But with the trend line broken now, the bearish bias has been lifted at least partially on the USD/JPY. Reflecting a change in the short-term direction, the USD/JPY has also broken above the 21-day exponential moving average, giving us some objective indication that perhaps it has bottomed out.

What the bulls want to see now is for the dips back to support around 130.50 to 131.60 to hold. This area was previously resistance and will now need to hold if tested from above. If the bulls hold their ground here, then a run towards the next potential resistance circa 135.75 or even the 200-day average around 136.80 is not too unrealistic in the days and weeks ahead.

The yen’s weakness come on the back of reports that Bank of Japan’s Masayoshi Amamiya, seen as leaning on the dovish side, was approached by the government to become the next BoJ governor. The report has raised speculation that there won’t be any massive changes in the BoJ’s ultra-loose monetary policy.

GBP/USD

The GBP/USD has extended its falls for the fifth day, thanks to a dovish Bank of England and a strong US dollar recovery. Today, the key 1.20 floor has broken down. A closing break below here would keep the path of least resistance to the downside towards the January 6 low, at 1.1841. Otherwise, if we get a late day recovery such that the cable ends the day back above 1.20 with a hammer-like candle, then that would negate the bearish picture. 

For now, the US dollar’s sharp recovery has not shown any major signs of a reversal yet, keeping many forex pairs under pressure. The dollar bounced back with a vengeance on the back of a much stronger US jobs print and ISM PMI report on Friday, and it hasn’t looked back since. The stronger US data has seen the market gravitate towards “higher for longer” narrative, helping to provide support for the dollar on the dips, intensifying the pressure on the cable.

Investors are now expecting the Fed to maintain a contractionary monetary policy in place longer than expected in order to dampen inflationary pressures that could arise from a tighter labour market. This is why we have seen the probability of another 25-basis point rate hike in March rise to almost 100%, while that of another 25 bp hike in May has jumped to 67% from about 40% a week ago.

There’s not much data today to help trigger a change in market’s perception of where the Fed might lift interest rates to. But Fed Chair Jerome Powell is giving a speech at 17:40 GMT, so it is possible we could see some movements around that time. Given the strong employment report on Friday Powell may try to strike a hawkish tone to align the market expectations with the FOMC’s central view again.

Silver

The turning point for silver was when the precious metal failed to hold its breakout above the black box shown on the chart:

Prior to the breakout attempt, silver had been consolidating its past gains for several weeks, ready to go higher. But evidently, supply was excessive relative to demand for silver above $24, causing prices to turn sharply lower. The precious metal now needs to find support naturally before we turn bullish on it again, at lower levels. The bulls must remain patient as it could be a while.

Indeed, the US dollar’s sharp recovery has not shown any major signs of a reversal yet, and this is keeping precious metals under pressure. Silver suffered a sharp two-day sell-off at the back end of last week, as the dollar bounced back with a vengeance on the back of a much stronger US jobs print and ISM PMI report. The stronger US data has seen the market gravitate towards “higher for longer” narrative, helping to provide support for the dollar on the dips, while keeping a lid on precious metals.

So, the path of least resistance continues to remain to the downside for silver, until the dollar tops out. There are not many obvious near term support levels until the area shaded in blue around $21.67.

WTI

Oil prices continued higher initially after rebounding on Monday. But at the time of writing, prices were coming off their best levels again. WTI started to ease off after testing the backside of its broken bullish trend line around $76.00. Monday’s high comes in at $74.65. If it fails to hold above this level then the bulls will be in trouble again. Undoubtedly many people will have their stops below this week’s low, beneath the $72.50 support level. Is THAT where price is likely to go to next, en route to $70 thereafter?

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