Summary:

• US dollar keeps declining, EURUSD above 1.23 as the ECB nears
• Oil stable despite a major inventory build
• Stocks keep soaring, China up 16% already this year!

No end in sight of the US dollar weakness – the weakest G10 currency in 2017 has started this year in a dismal way and that’s been continued in the Asia overnight as well as EURUSD punched through 1.23 and US dollar index (USDIDX) plunged trough a psychological support of 90. As it’s been the case lately there was little news to support the move and bond yields held steady as well but it seems the markets have lost faith in the US currency and unless we see more hawkishness from the FOMC (which looks unlikely in a near future) it could be hard to see a major recovery of the greenback. 

USDIDX crushed a support at 90 and there is no level to hang on in sight. However, a target of a reversed H&S formation has been fulfilled. Source: xStation5 

Meanwhile, higher and higher EURUSD is exerting a pressure on the ECB just a day ahead of its January meeting. Will Mario Draghi be scarred by a too-rapid appreciation and cool investors head? It could be likely but for now markets seem to be testing how much the Bank can tolerate. 

Oil is not a big mover today following a rapid rise yesterday but it could be a big day for this commodity as we have the DOE report on inventories. Declining US inventories provided lots of fuel for the rally in oil prices as the Brent surged from $45 during the summer of 2017 towards $70 in January. However, the API report saw a major build of inventories last week: 4.76mb for oil and 4.12mb for gasoline – way above market expectations of a small draw in oil and only a modest build in gasoline. Production estimates were higher as well. This could reflect a seasonal drop in demand but many oil bulls assumed that seasonal trends could be denied this year amid strong demand and reduced imports from the OPEC. If these numbers are confirmed today oil could see a pressure on prices as we could see a double top formation on the chart. Let us recall that speculative positioning on the oil market is the highest on record (and by a huge margin) so any long squeeze could be substantial. 

Could we see a double top on OIL? The DOE report might be decisive. Source: xStation5 

Champagne moods prevail on equity markets with the US500 adding 0.15% today and stocks in Asia largely up. The Chinese Hang Seng CE (CHNComp) added another 1% today and is 16% up in January alone! 

The data from Japan had little impact on the markets, we await reports from Europe and US. Source: xStation5 

On the data front we had trade balance and the PMI in Japan and some third-tier data from New Zealand and Australia with little market impact though – much more important figures will be released later as we await PMIs from the EMU and labour market data from the UK.