FOREX PRO WEEKLY, January 23-27, 2017

[Sive Morten]

Fundamentals

(Reuters) - The dollar edged down on Friday as investors were underwhelmed by the limited scope of executive actions and the lack of concrete policy reforms in the inauguration speech of newly sworn-in U.S. President Donald Trump.

Investors had been looking to Trump's first address as president to highlight his plans for fiscal spending, tax cuts and regulatory reforms. Instead, Trump focused his remarks on his "America first" policies that were short on specific proposals.

"To the extent you could read into that, you might think markets were expecting something more optimistic and they heard a little bit of pessimism, a little negativity," said Chris Zaccarelli, chief investment officer at Cornerstone Financial Partners in Huntersville, North Carolina. "The market is waiting to take its cues from actual policies as opposed to potential or proposed policies."

The dollar index, which tracks the greenback against six major currencies, was little moved immediately following Trump's remarks, but trudged downward as investors unpacked the speech and saw news of the executive actions.

"Trump’s speech focused on protectionism and the markets rejected the idea that protectionism is going to be the new president’s central focus because protectionism means trade wars, which is not good for the (dollar)," said Kathy Lien, managing director of BK Asset Management.

The dollar index fell 0.3 percent. It has risen about 3 percent since Trump's Nov. 8 election victory, but has shed about 1.3 percent so far in January on growing concerns about Trump's protectionist rhetoric and recent comments about his dissatisfaction with the strong dollar.

Analysts also noted the protests in Washington in which about 90 people were arrested as prompting investor uncertainty.

The dollar fell against the euro, Japanese yen and British pound, touching session lows against each at around 3 p.m. The dollar was lower against each currency for the week as well

The Mexican peso briefly trimmed early gains during Trump's speech, but strengthened again after the president did not detail measures that could specifically affect Mexico. The peso rose 1.8 percent against the dollar, its largest one-day percentage gain since November.

The peso has weakened significantly in the new year, touching a new all-time low of 22.03 pesos per dollar on Jan. 11.

Are investors misreading Trump on trade?
by Fathom Consulting

Arguably, US economic prospects are more positive than they have been in a long while. Throughout his election campaign, Donald Trump set out plans to reflate the US economy. Current market pricing suggests that investors have taken him at his word: these expectations have caused the US dollar to rally, and US Treasury yields to jump. US equities have also risen, particularly domestically-focused stocks. Are investors too sanguine about the outlook for the US economy? Have they misread Donald Trump’s intentions, especially on trade?

It appears that one of the items near the top of Mr Trump’s agenda when he takes office this Friday is to renegotiate the US trade relationship with China. The stakes are high: US exporters could lose access to the world’s second largest economy; and US consumers might be deprived of the hundreds of billions of dollars’ worth of goods that they buy from China each year.

One group of stakeholders that would arguably stand to lose most from a full-blown trade war are US firms that sell directly into China. If Donald Trump were to slap tariffs on imports from China, one might assume that China would respond by restricting access to its market for US multinationals.

In order to investigate how likely investors view such an outcome, Fathom has created an index that tracks the share prices of 25 US-listed firms that derive a significant share of their revenues from China. This index, which we call the China Exposure Index (CEI), weights firms by their revenue exposure to China and compares their share price movements to the relevant S&P 500 sector benchmark.

Surprisingly, our CEI shows that US firms that do business in China have outperformed their peers since the election. Are investors oblivious to the risks of a trade war with China? Or are they confident that Donald Trump will strike a deal with China, increasing access to the Chinese market for US firms? We think that the latter is more likely.

COT Report
Speculators reduced long bets on the U.S. dollar for a second straight week, as investors continued to pare back overextended positions on the greenback and worried about U.S. President Donald Trump's trade and
currency policies.

The value of the dollar's net long position was $24.44 billion in the week ended Jan. 17, from $24.95 billion the
previous week, according to data from the Commodity Futures Trading Commission released on Friday and calculations by Reuters.

After a sharp rally following Trump's victory in November that saw a 3 percent surge for the month, the dollar has come back down to earth, undermined by uncertainty surrounding the new president's policies, specifically a stimulus plan that was promised during his campaign.

The dollar had rallied the last two months on the back of Trump's campaign promises of fiscal stimulus and tax cuts, but that rally ran out of steam in the run-up to Trump's inauguration. For the month of January, the dollar index has fallen 1.3 percent so far, on track for its weakest monthly performance since March last year.

"If the dollar continues to weaken, we're rapidly running out of room and dollar bulls may be forced into a full-fledged capitulation, which has yet to take place at current levels," said John Hardy, head of forex strategy at Saxo Bank, in Copenhagen.

"If the dollar firms, on the other hand, the gains could come quickly as frustrated bulls have been without a case, ironically since the Fed's rate hike in December, which marked the end of the most recent dollar advance," he added.

The Reuters calculation for the aggregate U.S. dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars.

Speaking on EUR directly, in last two month we see that net short position has reduced while open interest mostly remains the same. It means that some part of short positions was replaced by longs. At the same time price has turned up just 2 weeks ago, and probably this shorts-by-longs-replacement has low volumes. That's being said, current CFTC data mostly supports retracement that we have on EUR, but at the same time doesn't lead to conclusion that this is new bull trend yet.

Technical
Monthly

So, markets' preparation for D. Trump speech in result was in vain, just empty bubble. Nothing was said, no clarity was brought to investors. It seems that right now investors will have to search their own solution and betting on further direction without external hints from new president administration, at least until next Fed meeting... As a result, two weeks of preparation has ended with no result. Reaction on Trump speech was anemic.

Right now January is just inside month and makes no impact on overall long-term picture. We know that fundamental background mostly looks bearish for EUR - potentially more hawkish Fed policy, ECB QE prolongation, coming elections in many EU countries, bringing more uncertainty. After GB, separatistic sentiment start to appear in other countries of EU, as Italy, France, Netherlands, Spain that are not satisfied with Brussels domination in governing EU.

So as New year starts, we have new yearly pivots numbers.
Yearly Pivot (YPP) stands at 1.0828 area, YPR1 = 1.1305, YPS1 = 1.0040. Last one has major importancy for us. It is interesting that 2017 YPS1 coincides with parity.

The only new pattern that we could watch here is possible bearish grabber as January has touched MACDP line. Now we need to wait what close price we will get. This will be weaker type of grabber, but still, on monthly chart it also could be important.

On a way down, guys, EUR has passed through all major Fib levels. Last one was at 1.12 area and now we do not have any other below current market. Also price has dropped below 1.27 extension of this big butterfly. Thus, on monthly chart the only logical destination point stands at parity - 1.618 butterfly extension, chanell trend line support and YPS1.

Among other patterns that we have, we could mention bearish dynamic pressure. But mostly it has completed it's target as 1.05 lows has been taken out.

Also take a look at different behavior near low border of channel. Previously when market has touched it - it shows immediate upside pullback, it was V-shape reversal. Right now behavior is absolutely different, price just hangs on the border and shows no upside action. Any tight consolidation near trendline could become a sign of coming breakout.

Thus, based on monthly chart we could make two major conclusions. First is - real bullish trend will be re-established only if EUR will erase reversal candle and overcome its top above 1.16. Our next target on Monthly chart is parity - 1.618 Butterfly extension, YPS1 and trendline support.

In general guys, we think that steps that already have been announced by ECB and Fed should be enough to push EUR right to parity during "price-in" process, when market will "anticipate" them. But further dynamic will depend on real action from Fed, Trump administration and ECB. How they will fulfill their promises and obligations. Any surprising hawkish measures could push EUR even below parity, while step out from pormises could lead to appearing of reverse H&S pattern on monthly/weekly charts.

In shorter-term perspectives, as we've come to conlcusion that EUR could show deeper upside retracement, our attention is attracted by YPP, that stands at 1.0830 area. This is , in turn, logical destination for short-term upside retracement, as we said earlier:

Weekly

Today we probably have to postpone discussion of weekly targets, since it seems that market will spend some more time in retracement, before it will turn to new extension leg down. Thus, right now we will talk mostly about 3-4 weeks consolidation and price action relatively to this consolidation rather than on big targets of our butterfly pattern.

Trend has turned bullish on weekly, pice is not at OB/OS. Our grabber pattern has beend erased by upside price action last week. Speaking in two words - it seems that EUR will continue upward action to next resistance around 1.0830 area. On a way up it also will test YPP. Take a look that bottom of current consoldation around 1.03-1.04 lows was formed by dojies, a kind of high wave pattern and market was standing in its range almost for month or so. But yesterday, price finally broke it up. It means that market has chosen short-term direction and keeps chances on upside continuation a bit more. Although this fact absolutely doesn't change larger picture.

With big picture on weekly chart we have 2 major patterns - butterfly and inner AB-CD pattern. Now market shows reaction on 1.0 extension target.

Final destination 1.618 point coincides with 1.618 butterfly target. Although we have multiple targets inside 1.0-1.05 area, ther are all minor ones. Recall, that we have daily 1.0230 extension. Also, if you will take a careful look, you could recognize another smaller butterfly inside right wing here. It also has target at 1.02 and 1.013.

But, guys, if EUR will be on a road to parity, all these intermediate targets will be hit very fast one by one.
Also, it is not very probable that market will stuck around 1.27 butterfly and will not go to parity. By two reasons - first is, pshychological pressure, second - when price will hit 1.27, it will be between 1.0 and 1.618 extensions of AB-CD pattern and this position is very unstable, market gravitates to some target... That's why parity probably should be hit.

And after that most interesting thing will come. Take a look that butterfly could become part of large reverse H&S pattern. But whether it will be formed or not will depend on fundamental factors, D. Trump ficsal policy, US economy data and Fed reaction. Thus, we have more or less single road to parity, but later, around it we will get a crossroads...If there will be something bearish that wasn't priced in yet - EUR could drop even further. If not - H&S will start to form...

Daily

On daily chart price action looks choppy and sloppy that is typical for retracement mode. As we've estimated 2 weeks ago EUR has broken market mechanics in favor of 2-leg double sized upside retracement, and still follows it.
The major background and reason for this retracement is information vacuum. Market was ready to stay on bear trend and push price lower, right to parity, but sudden question on perspectives of Trump financial policy has chilled them out a bit and forced to take a pause and wait for some clarity. But this clarity has not come niether on speech 2 weeks ago, nor during inauguration speech. And this is mostly negative for dollar in short term. That's why this retracement stands under way. At the same time it explains low activity and choppy action, because this is just a time of indecision and expectation, this is like drifting boat with engines off, while captain is choosing the direction and watching maps.

Technical picture also mostly looks supportive for further upside action. Price stands above MPP. K-resistance was tested once and after minor bounce up price has returned back inside it. EUR is not at OB right now. Trend stands bullish. Thus, here we see no signs yet that could point on inability to reach 1.0830 resistance area:

Intraday
On 4-hour we have rather constant picture - the same butterfly and inner AB=CD pattern. Nearest destination point is 1.0735, that probably should be reached on monday. 1.618 extension stands right around 1.0830 target and this could be an answer how retracement will be fisnished.

To complete first target @ 1.0730 EUR probably will form another minor butterfly hourly chart. Also there will be WPR1 area:

Conclusion:

Although we do not see any menace to our long-term view from current upside action - it's scale is too small to make impact on long-term view, market probably will creep a bit higher. As major reason of current upside retracement is lack of clarity on US administration steps in financial sphere - market will wait it until they will come. Thus, there is no suprise that EUR will spend some some time in retracement and could reach 1.0830 target.



The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.

 

[Sive Morten]

Good morning,

(Reuters) - The dollar wallowed near seven-week lows in Asian trade on Tuesday, pressured by concerns about the impact of U.S President Donald Trump's protectionist trade stance.

The dollar index, which tracks the greenback against a basket of six major peers, slipped 0.1 percent to 100.040 .DXY, after falling to 99.899 on Monday, its lowest since Dec. 8.

The dollar was up 0.1 percent at 112.84 yen but notched a low of 112.52 earlier in the session, its weakest since Nov. 30, and well below its overnight high of 114.45.

Trump formally withdrew the United States from the now 11-nation Pacific Rim Trans-Pacific Partnership (TPP), distancing America from its Asian allies. He has also said he intended to renegotiate the NAFTA free trade agreement between the United States, Canada and Mexico.

"The market doesn't like this increased protectionist stance. For now, at least, it's reassessing the impact of that relative to the pro-investment stance that drove the U.S. dollar higher," said Sue Trinh, head of Asia FX strategy at Royal Bank of Canada in Hong Kong.

"It's now just watching and waiting, with headline risk, to see Trump's first 100 days as we get greater clarity around his policies and around his cabinet, all of these are likely to inject greater volatility into the market," she said.

Lower U.S. Treasury yields also undermined the dollar. The benchmark 10-year yield posted its biggest one-day drop in more than two weeks as concerns about the fallout of Trump's tough stance on trade spurred safe-haven demand for bonds.

"We saw dollar weakness in conjunction with those falling yields, and it led to a strengthening of the yen," said Bill Northey, chief investment officer of the private client group at U.S. Bank in Helena, Montana.

"Much of it was based on non-economic news. We saw the U.S., through executive action, withdraw from the TPP, which brings up some broader questions about the degree of trade protectionism that we might see out of the new administration," he said. "That certainly played into today's activity."

Trump's nominee for Treasury Secretary Steven Mnuchin was quoted by Bloomberg as saying that an excessively strong dollar was negative in the short term, which put additional pressure on the dollar.

Mnuchin has told senators that he would work to combat currency manipulation but would not give a clear answer on whether he currently views China as manipulating its yuan, according to a Senate Finance Committee document seen by Reuters on Monday.

China's yuan firmed against the dollar on Tuesday after the central bank fixed the official yuan midpoint at the strongest level in more than two months, in the wake of the dollar's broad slide.

Also adding to investors' risk-averse mood, the Trump administration vowed on Monday that the United States would prevent China from taking over territory in international waters in the South China Sea, something Chinese state media has warned would require Washington to "wage war"

The euro edged down 0.1 percent to $1.0754 after earlier touching $1.0774, its strongest level since Dec. 8.

The dollar's weakness gave an additional lift to sterling, which scaled six-week peaks as investors bet Britain's Supreme Court would rule later on Tuesday that the government needs parliamentary approval to trigger formal talks about the country's exit from the European Union.

The pound was slightly lower on the day at $1.2520 after earlier touching $1.2538, its loftiest level against the dollar since Dec. 15.

So, while our EUR butterfly on hourly chart stands well, we can dedicate some time to other currencies and right now I like GBP. It has pretty nice short-term setup for 1-2 sessions.
On daily chart GBP is forming something that reminds double bottom pattern and it is very probable that some day it will reach 1.28 neckline area, may be on next week... but right now we're mostly interested in daily OB. If you will take a look at other cases when OB has been hit - you'll see that cable shows at least 30% retracement. Thus - this is our short-term idea:

On 4-hour chart price has completed minor 0.618 AB-CD target, butterfly "Sell" near Fib resistance. Also, it is forming reversal bar:

Finally, on hourly chart we have confirmed DRPO "Sell" pattern right around WPR1:

So, what do we have - daily OB close to Fib resistance and WPR1, multiple bearish reversal patterns on intraday charts. It seems that GBP could show minor retracement to 1.24-1.2430 area. Probably it would be better to focus on 1.2430 by some reasons. On daily chart we have solid upside action and major barrier on a way up is OB which usually triggers 30% retracement and this is 1.2430 area. This is more conservative target. Respect to butterfly is also usually at least 30 %. Finally, recent rally on 4-hour chart is thrust as well. Thus, GBP could form B&B "Buy" around, and more chances that this could happen from 1.2430...
So, 1.2430 is better as "at least" target.

 

[Sive Morten]

Good morning,

(Reuters) - The dollar drifted lower against the yen and euro on Wednesday, as lingering concerns about U.S. President Donald Trump's protectionist stance undermined the greenback's earlier rebound.

The U.S. currency was down 0.25 percent at 113.500 yen after briefly nearing 114.00. It had gained about 1 percent the previous day to bounce from an eight-week trough of 112.520 as U.S. Treasury yields had reversed course and risen.

The euro was a shade higher at $1.0733. The common currency had lost about 0.3 percent overnight, sliding from a near seven-week high of $1.0775.

The dollar index against a basket of major currencies gave back a bulk of its overnight gains and was last down 0.2 percent at 100.180.

"We retain our view that the dollar is on a longer-term uptrend. But for the moment, scepticism towards the Trump presidency retains the upper hand," said Shusuke Yamada, chief Japan FX strategist at BOA Merrill Lynch.

"Such scepticism could linger for a while since it will be some time before we get a clear picture of the Trump presidency's fiscal spending and tax plans."

The dollar index had soared to a 14-year high of 103.820 in the eight weeks following Trump's surprise election victory in November.

Investors bet his promised infrastructure spending and tax cuts would boost economic growth and inflation, leading the Federal Reserve to follow through with a series of rate hikes.

But the dollar index went to a six-week low of 99.899 on Monday, with the initial elation tempered by Trump's inaugural speech last week that was heavily slanted toward trade protectionism.

"The dollar did manage to bounce overnight but it still lacks general direction. I do not see the rebound going much further under such conditions," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

And while higher U.S. yields may have given the dollar a lift for the moment, Yamamoto saw the correlation between the two lessening ahead.

"Protectionist rhetoric and the negative impact it has on the dollar could begin to override any lift from higher Treasury yields," Yamamoto said.

Elsewhere, the pound was up 0.1 percent at $1.2528. It had fallen to as low as $1.2420 overnight before bouncing back after the British Supreme Court ruled that the government must go through parliament, but not the U.K.'s regional assemblies, to trigger talks on leaving the European Union.

The decision overall was seen removing some of the uncertainty for the pound by clearing the way for Prime Minister Theresa May to proceed with launching Brexit talks.

The Australian dollar was down 0.4 percent at $0.7548, knocked away from a 10-week high of $0.7609 scaled the previous day as weaker-than-expected fourth quarter inflation data kept alive the prospect of another rate cut.

The New Zealand dollar fared better to stand little changed at $0.7244, hovering near a ten-week high of $0.7276 hit the previous day.

U.S. Treasury yields rose on Tuesday as investors snapped up equities on improved outlook on corporate profits, trimming their safe-haven demand for bonds spurred by U.S. President Donald Trump's protectionist trade stance.

So, today we finally could turn back to EUR. Our GBP and CAD trades have been completed yesterday. As we've said in our weekly research - in coming 2 weeks we probably will deal with current upside retracement and forget for some time about long-term analysis and targets..
On daily chart EUR slowly but stubborny continues upward action and stand now very close to our 1.0830 target. Trend is bullish here, market is not at OB. Our major pattern that we're watching on EUR - is reverse H&S. Left shoulder and head are almost in place already:

But right now we have one concern here - when EUR will start to form right shoulder. Now, or it will climb first to 1.0830? If you take a look at 4-hour chart - EUR has completed 1.27 butterfly target, inner AB=CD pattern and in fact, it has reached neckline area - 1.0775. This range is rather wide, even till 1.0880 it could be treated as neckline. That's why, actually EUR could turn down either right now, or after reaching of 1.0830 or from any place. And every time this will be neckline.
So, we need to estimate some important signs, how we will understand what is going on. And most important tool for us right now is support trend line:

On hourly chart EUR also has completed butterfly and hit WPR1. So, we have rather strong resistance. That's why first conclusion that could make here - retracement down definitely should happen, and most probable right to neckline, since it's coincides with favorite for EUR 50% Fib level.
After that - we will watch what will happen. if EUR will drop below trend line and 5/8 FIb level, it will mean that it has started to form right shoulder. Conversely, if it will hold there, then it will try to reach 1.0830 and only after that will start deep retracement to 1.05 area:

 

[Sive Morten]

Good morning,

(Reuters) - The dollar slumped to seven-week lows on Thursday, pressured by investors' concerns about U.S. protectionism after President Donald Trump gave the go-ahead to construction of a U.S.-Mexican border wall and prepared to impose some immigration curbs.

The dollar index, which tracks the greenback against a basket of major currencies, was last down 0.1 percent at 99.886. It dipped to 99.793 earlier in the day, its lowest level since Dec. 8.

The dollar was generally weaker despite a rally on Wall Street, where the Dow Jones Industrial Average closed atop the 20,000 mark for the first time.

Trump has made several business-friendly decisions since taking office on Friday, including signing executive orders to reduce regulatory burdens on domestic manufacturers and clearing the way for the construction of two oil pipelines.

However, the president's broad but divisive plans to reshape U.S. immigration and national security policy rattled some investors, partly because the U.S. needs foreign capital to finance its large current account deficit.

Trump on Wednesday ordered construction of a U.S.-Mexican border wall and punishment for cities shielding illegal immigrants, and he also mulled restoring a CIA secret detention programme.

"Amid concerns over Trump's protectionism, the correlation between U.S. Treasury yields and the dollar has gotten weaker," said Junya Tanase, chief currency strategist at JPMorgan Chase Bank.

The dollar last stood at 113.38 yen against the yen, nearly flat on the day and not far from a two-month low of 112.52 yen touched on Tuesday, even as U.S. Treasuries yields stayed near four-week highs.

The U.S. benchmark 10-year Treasury yield last stood at 2.523 percent, close to a 4-week high of 2.538 percent hit on Wednesday.

"It's similar to the U.S.-Japan trade conflicts in 1990s. Back then, the dollar was weak despite the high U.S. interest rates. The dollar would remain weak if Trump pushes his protectionist rhetoric," said JPMorgan Chase's Tanase.

On immigration policy, Trump is expected to sign an executive order in the coming days to block the entry of refugees from war-torn Syria and suspend the entry of any immigrants from Muslim-majority Middle Eastern and African countries while permanent rules are studied.

However, some analysts are sceptical as to what extent Trump would back up his protectionist remarks with action.

"It is highly doubtful whether Trump would go ahead with a large-scale immigration ban to an extent that would affect the markets in a long term," said Masashi Murata, senior currency strategist at Brown Brothers Harriman.

"Trump would keep his strong rhetoric from his candidate days to assure his followers, but he has not detailed the actual action plans. His policy won't be a straight-forward protectionism, considering his positive comments on the strong Mexican economy," added Murata.

Mexico's peso strengthened to a three-week high of 20.9300 peso on Wednesday as Trump said the country's economic future was important to the United States. The currency last stood at 21.0835 pesos per dollar.

Sterling was last up 0.1 percent at $1.2648, its highest peak in six weeks. The pound was helped by expectations for a rapid trade deal between Britain and the United States, which Prime Minister Theresa May said on Wednesday would "put UK interests and UK values first."

May will be the first foreign leader to meet the new U.S. president, and trade is expected to dominate their first talks on Friday.

Hopes for a clarity over the Brexit plan also pushed the pound. Britain said it would publish draft legislation on Thursday seeking parliament's approval to begin formal divorce talks with the European Union as May agreed to lawmakers' demands to publish her Brexit plan.

The euro was last up 0.1 percent at $1.0762 against the dollar, slightly below Tuesday's seven-week high of $1.0775.


So, on daily EUR situation has not changed - we still watch over current rally and also keep in mind possible H&S pattern. But on intraday chart we have some new inputs that should help us to answer on yesterday's question - when EUR will start to form right shoulder...

As we've estimated yesterday - EUR has reached rather strong resistance area - AB=CD target, butterfly 1.27 objective point, WPR1. And normally it should show some respect, at least minor retracement. Previously we thought that it should drop to trend line support. But right now it looks more like consolidation that envelops resistance area and takes the shape of pennant. Recall that EUR stands right around neckline area. Usually when price forms this kind of consolidations, it could be a sign of preparation for breakout. Also here we have a sign of bullish dynamic pressure - price is forming higher lows, trend has turned bearish, but price action is not:

So, it seems that today EUR could form another minor butterfly and make an attempt of breakout and reaching of 1.08 level:

 

[Sive Morten]

Good morning,

(Reuters) - The dollar perked up on Friday, rebounding from a seven-week low on optimism over the U.S. economic outlook and corporate earnings, while the Mexican peso fell after the White House floated the idea of a 20 percent tax on Mexican goods to pay for a border wall.

The dollar index, which measures the greenback against six major peers, gained 0.2 percent to 100.57. The index had recovered overnight to hit 100.73, after dipping to a seven-week low of 99.793.

"The dollar was helped by rising U.S. Treasury yields and strong equities," said Minori Uchida, chief FX analyst at Bank of Tokyo Mitsubishi UFJ.

"Trump has signed several executive orders since his inauguration, showing continuity from his campaign days, so the markets expect him to go ahead with the fiscal stimulus as well," Uchida added.

While U.S. equities and Treasury yields have extended their gains in the past week, fuelled by a positive U.S. economic outlook and President Donald Trump's signals of new public spending, concerns over potentially new trade barriers have weighed on the dollar in the last two weeks.

The dollar index is on track to lose 0.2 percent this week. It has weakened for two consecutive weeks since the beginning of this year.

Investors were also concerned about Trump's plans to construct a U.S.-Mexican border wall to stem illegal immigration.

The White House said on Thursday that Trump proposed a new 20 percent tax on goods from Mexico to pay for the wall.

The Mexican peso fell 0.6 percent against the dollar following the news, and stepped back from Thursday's three-week high of 20.8645. It last stood at 21.35.

"The tax on Mexican imports will undermine consumer purchasing power and could eventually cast a shadow on the U.S. economy," said Makoto Noji, senior strategist at SMBC Nikko Securities.

"A protectionist stance adding to tensions between trade partners will not be positive for stocks and the dollar in the long term," Noji said.

The dollar gained 0.4 percent against the yen to 114.96 yen. The greenback rose to a high of 115.04 yen earlier on Friday after the Bank of Japan announced an increase in five- to ten-year Japanese Government bonds purchases and helped bring down yields from 11-month highs

The BOJ's move added to the widening of U.S.-Japan interest rate differentials which has boosted the dollar since the U.S. election.

The U.S. 10-year Treasury yield last stood at 2.515 percent, while the 10-year JGB yield was at 0.070 percent , down 1.5 basis points on the day.

The yen showed limited response to a slightly better-than-expected reading in Japan's consumer price index (CPI) data. The core CPI fell 0.2 percent from a year earlier in December, less than economists' forecast of a 0.3 percent fall.

The euro last stood at $1.0679 against the greenback, not far from Thursday's low of $1.0658.

The euro was on track to lose 0.2 percent this week, after gaining for two consecutive weeks since the start of the year.

Investors' focus is now on U.S. fourth-quarter gross domestic product estimates due later in the day.

Sterling was fetching $1.2582, and is on track to gain 1.8 percent for the week. It gained 5 percent in two weeks, recovering from a three-month low of $ 1.1983 hit on Jan. 16.

British Prime Minister Theresa May will be the first foreign leader to meet the new U.S. President later in the day. May called on Trump to renew the "special relationship," expecting a rapid trade deal and close economic ties between the two countries.

So, on EUR situation has changed slightly. Although it doesn't give us no advantage yet. It seems that price could start to form right shoulder of daily H&S pattern right now. But situation stands so that right now it is not comfortable place to open any trade. Whether you want to go short or long - you probably will wait for 1.05 lows of right shoulder. For bulls this is perfect area to go long, as it gives best risk/reward ratio. For bears - this is moment where market could fail and signal for short entry could appear.
Right now - market stands in semi-position. Besides, today we will get GDP release and, say, if EUR will form daily bullish grabber - it could mean that chances on final spike to 1.0830 could relive.

On 4-hour chart EUR has broken our trendline, but still keeps harmonic retracement swing:

Hourly chart shows that on drop down EUR has reached our predefined support area around WPP, in few hours it could form minor butterfly, if you're interested with it. But guys, we need a bit more clarity. And we hope that it will come on GDP release

 

[Robban68]

Agree, E/U is tricky atm. It would be better if it would get some higher into the 1.08 area before a potential right shoulder will form. However, there is also a potential bearish grabber on Monthly to keep track on. There is 3 trading sessions before we know, so there is still some room on the upside and potential rejection of the highs. My bet is it is not a done deal for the short terms bulls yet but it will probably resolve soon.