GBPUSD TECHS: Holding On To Its Recent Gains

• RES 4: 1.2607 High Dec 30
• RES 3: 1.2545 50-day EMA     
• RES 2: 1.2371 20-day EMA 
• RES 1: 1.2345 High Jan 21
• PRICE: 1.2305 @ 16:00 GMT Jan 21
• SUP 1: 1.2100 Low Jan 10 and the bear trigger 
• SUP 2: 1.2087 0.764 proj of the Sep 26 - Nov 22 - Dec 6 price swing
• SUP 3: 1.2037 Low Oct 4 ‘23 and a key support 
• SUP 4: 1.2000 Psychological round number      

The primary trend direction in GBPUSD remains down and recent gains are considered corrective - for now. Initial firm resistance to watch is 1.2371, the 20-day EMA. A clear breach of the average would highlight a stronger corrective phase and signal scope for an extension, possibly towards the 50-day EMA, at 1.2545. The bear trigger has been defined at 1.2100, the Jan 10 low. Clearance of this support would resume the downtrend.

• Overnight headlines regarding Trump imposing tariffs on Mexico and Canada as soon as February 01 dented major equity indices and boosted the greenback through APAC hours on Tuesday. However, the steady recovery for these equity benchmarks throughout the session weighed on the broad dollar indices, with the DXY tracking back towards the Monday lows in late US trade.
• USDCAD volatility has understandably been in the spotlight, registering an impressive daily range of 1.4290/1.4516. Broader risk/greenback sentiment has largely been responsible for the Canadian dollar recovery, however, markets did also receive broadly in line with expectation inflation data for December.
• Separately, Canadian officials have maintained a retaliation rhetoric towards the tariff announcement, while Mexico’s president said Mexico must keep a cool head on Trump orders. In both instances, the local currencies have shown sold resilience across Tuesday’s session.
• EURUSD has risen back above 1.0400 in latest dealings with the lack of concrete details on tariffs for Eurozone countries potentially bolstering the single currency relief rally. We have noted the bounce so far appears corrective in nature; however, the latest bullish developments are being monitored closely. In particular, the pair has breached the 20-day EMA, at 1.0346, and pierced trendline resistance at 1.0393, drawn from the Sep 30 ‘24 high.
• Single currency outperformance also stands out in the crosses, with the likes of EURCHF and EURGBP holding close to the most recent cycle highs.
• New Zealand CPI highlights the overnight docket before we await speakers from the World Economic Forum in Davos on Wednesday, which includes ECB President Lagarde.

• USDCAD has pulled back to 1.4335 for a > 100 pip decline in recent hours in continued gyrations around tariff considerations and the extent to which President Trump is using threats as a negotiating tool.
• Resistance is at the 1.4516 seen after Trump re-focused tariff threats on Canada and Mexico late yesterday. Support remains at yesterday’s low of 1.4262 having pierced multiple technical levels.
• Canadian officials maintain retaliation rhetoric, with Trudeau earlier advocating dollar-for-dollar retaliatory tariffs. Opposition leader Poilievre (firm favourite to win the next election, be it early or otherwise) meanwhile hasn’t commented on his preferred stance for contesting US tariffs.
• 2Y GoC yields are 2bp higher since the CPI report with 2Y Tsy yields matching the move for back to little changed on the day.
• The Can-US 2Y yield differential is therefore little changed at -137bps, set to close at joint multi-decade lows, last seen lower in the late 1990s.
• As for the nearer-term, there is 21bp of cuts priced for the BoC next week, i.e. mostly pricing taking the overnight rate target down to 3%.
• CORRA futures see a terminal close to 2.75%, whereas many analysts see a terminal closer to the bottom of the BoC’s estimated neutral range of 2.25-3.25%, if not below.