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AUD and NZD Outperform Amid Steady Recovery In Equities

FOREX
  • Firmer major equity benchmarks left Aussie and Kiwi top of the G10 FX leaderboard on Wednesday as broad dollar indices retraced yesterday’s small advance.
  • Bolstered risk sentiment filtered through to risk/commodity tied currencies, however, price action/volatility remained subdued as market participants await US January consumer price data, scheduled for release on Thursday.
  • For AUDUSD bulls a sustained break of key short-term resistance at 0.7179, the 50-day EMA would alter the bearish technical outlook.
  • EURUSD had a brief pop to session highs of 1.1448 on Bloomberg reports that more ECB officials are said to distrust inflation forecasts, which emboldens a shift toward tighter policy this year, according to sources. The move fell just short of yesterday’s 1.1449 peak and any renewed optimism for the single currency was quickly sapped with EURUSD returning to the 1.1430 area.
  • Ahead of tomorrow’s data, it is worth noting EURUSD’s recent consolidation appears to be a bull flag, reinforcing bullish conditions following last week's gains and clearance of the 20- and 50-day EMAs. The pair has also breached the top of its bear channel drawn from the Jun 1 high of last year, highlighting a more significant reversal. The focus is on 1.1558, a Fibonacci retracement. Initial support is seen at 1.1336.
  • Emerging market currencies were favoured amid the supportive price action for equities, with emerging market currency indices rising around 0.5% and particularly strong performances from ZAR (+1.15%) and EURPLN seen 0.86% lower.
  • On Thursday, potential comments from BOE Governor Bailey, speaking at an online event before US inflation data hits the wires 0830ET/1330GMT.
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