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Corrective USD Strength Persists

FOREX
  • The corrective bounce in the USD persists early Wednesday, putting the USD higher against most others in G10. The USD Index has now recouped close to 1.75% off the late December low, aided by the bounce in US yields, which are led by a 5bps rally in the very long-end. Moves are deemed corrective at these levels, with most major pairs including GBP/USD, EUR/USD and others yet to encounter meaningful support that would trigger a broader reversal.
  • The subsequent USD/JPY rally has been the most meaningful move in G10, helping the pair narrow the gap with the 200-dma of 143.18. Below here, the bounce is seen as corrective as the oversold conditions from late '23 unwinds. 142.85 - the late Dec high - has contained prices so far, making a longer-lasting reversal unlikely below 143.00.
  • GBP/USD has stabilised just above yesterday's lows, but the bounce looks lacking given USD strength. Similarly, EUR/GBP weakness is yet to encounter yesterday's lows and the support undercutting at the 0.8644 100-dma.
  • Focus for the Wednesday session turns to December Manufacturing ISM, for which markets expect the print to improve slightly to 47.1 from 46.7, but remain below the key 50.0 level. JOLTS jobs numbers are also set for release ahead of the FOMC minutes after the European close. The first Fedspeak of the year is also due, as Fed's Barkin addresses the Raleigh chamber of commerce on the economic outlook.
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