GBP Was Easily The Strongest Of The Major Currencies

British Pound Dominates in Choppy, Low Volume Trading

The British pound was easily the strongest of the major currencies on Wednesday, surging over 2 percent against the Canadian dollar and just over 1 percent versus the US dollar and Swiss franc.

The move was indicative of the low volumes we’re seeing ahead of New Year’s Day, when most of the world’s markets will be closed, which leaves the British pound prone to reversal.

Next week, on January 7, the Bank of England (BOE) is anticipated to leave rates unchanged at 0.50 percent, but this won’t even be the market-moving part of the announcement. Instead, traders will be looking toward the BOE’s policy statement.

This has consistently been the prime “news event” of recent rate decisions. Last month, the BOE indicated that they would likely wait until their February meeting before considering any changes to the Asset Purchase Facility (APF), which is currently aiming to purchase £200 billion worth of high quality assets.

With no program changes expected this time around, there is potential for the British pound to gain on neutral news as traders will price in an end to the BOE’s quantitative easing program.

USD Staged A Solid Rally At The Start

US Dollar Mostly Stronger as Chicago PMI Hits Four-Year High

The US dollar staged a solid rally at the start of the US trading session, and while the currency ultimately ended the day up against many of the majors, the greenback fell throughout the afternoon and experienced hefty losses against the British pound.

Looking to the data on hand, the Chicago Purchasing Managers Index (PMI) surprisingly rose for a third month in December to a nearly four-year high of 60.0 from 56.1, indicating that business activity is growing at a faster clip.

A breakdown of the index shows that prices, production, new orders, and employment have all been on the rise, providing a more optimistic view of activity than various measures of manufacturing sector activity, such as the Dallas Fed and Richmond Fed reports. Ultimately, this suggests that the services sector is leading the way to US economic recovery.

On Thursday, there is minimal event risk and trading volumes will remain very low ahead of New Year’s Day. This puts the spotlight on the following week when liquidity will return and a series of key economic indicators will be released. On Monday, the December reading of ISM manufacturing is projected to rise to 54.0 from 53.6, indicating an expansion in US business activity for the fifth straight month.

On Wednesday, the release of ISM non-manufacturing is projected to show that business activity expanded during December, as the index may rise to 50.5 from 48.7. Later in the day, the minutes from the Federal Reserve’s last meeting on December 15 and 16 will hit the wires.

Following that meeting, the US dollar initially fell as they announced that they had left the fed funds rate unchanged at 0.25 percent, as expected, and stated that rates were like to remain “exceptionally low” for an “extended period.”

However, a statement that “economic activity has continued to pick up and that the deterioration in the labor market is abating,” along with fairly clear deadlines for the central bank’s liquidity programs ultimately led the US dollar higher against the euro and some of its other major counterparts.

Forex Technical Market Report

EUR : EurUsd is currently trading at 1.4360 levels. Upside correction is expected till 1.4420 levels from where shorts can be initiated.

Immediate support comes around 1.4260 levels. Bias still remains bearish and shorts close to 1.4400-1.4480 levels can be considered for the target of 120 pips and lower.

Break below 1.4250 levels should keep the bearish scenario intact testing 1.4120 - 1.4150 levels. (EURUSD - 1.4360) Bearish.

GBP : GbpUsd is currently trading at 1.6060 levels. Yesterday it made a bottom of 1.5830 level and closed at 1.6050 levels.

Upside correction is expected near 1.6150 - 1.6200 levels (200 days Daily EMA and 38.2% retracement) where shorts can be initiated for the target of 150 -200 pips keeping stoploss above 1.6250 level. Immediate support comes around 1.5980 levels .

Short term bias still remains bearish till 1.5700 levels until 1.6220 level is held.(GBPUSD 1.6060) Bearish.

JPY : The JPY is currently trading in a rising channel pattern.

Immediate resistance comes around 93.10 levels which if broken then could test next resistance level near 94.20 levels where shorts can be initiated for the target of 90 levels.

Bias for USDJPY pair remains strong above 88.40 levels. (USDJPY- 92.36) Neutral.