Daily Analysis | 09 January 2018
The discussion about the number of rate hikes in 2018, for the FOMC, continued yesterday. Boston Fed Reserve President Rosenberg said that the Fed should consider changing its target rate to a range of acceptable inflation rates namely 1.5%-3% instead of 2%. Also, he mentioned that periodic reassessment of the target inflation rate could prove useful. The adoption of such an idea would enable the Fed to increase the rate hikes pace and provide some flexibility. On the other hand, San Francisco Fed President John Williams, said that the fed could better fight a recession by committing to keep interest rates lower for longer and Atlanta Fed president Raphael Bostic, said that the Fed may only need to raise interest rates twice in 2018. Bear in mind that Minneapolis Fed President Neel Kashkari is about to speak today and he could further add to the dovish rhetoric of the past couple of days. Overall, voices for a slower pace in rate hikes seem to increase and the hawks seem to look for ways to fundamentally justify the pace of three rate hikes in 2018. Should that be the case we could see a shift in Fed’s power balance as well as a disappointment in the market, and thus a weakening of the greenback. The overall effects on the US Dollar may take some time to actually influence its direction as the inflation rate still remains a riddle and the effects of the new tax law remain to be seen. The EUR/USD weakened yesterday and during today’s Asian morning it stabilized somewhat, staying between the support level of 1.1940 (S1) and the resistance level of 1.2097 (R1). We see the case for the pair to continue to trade in a sideways manner with the risks tilted to the downside as the RSI index has not reached 30 yet and the moving averages seem to slow down. Should the pair come under renewed selling interest we could see the pair breaking the 1.1940 (S1) support level and head towards the 1.1851 (S2) support resistance zone. Should the pair come under buying interest it could reach the 1.2097 (R1) resistance level and break it aiming for the 1.2291 (r2) resistance barrier.
- Support: 1.1940 (S1), 1.1851 (S2), 1.1715 (S3)
- Resistance: 1.2097 (R1), 1.2291 (R2), 1.2355 (R3)
UK Prime Minister reshuffles cabinet ahead of Brexit talks
UK’s PM Theresa May reshuffled the cabinet and named a new head of the conservative party in an effort for a fresh start before the Brexit talks begin. However, the opposition, questioned her ability to actually start new as main cabinet positions remain unchanged. As some media suggest, criticism at home is rising about her approach to Healthcare, Housing, and transport and she may be losing Conservative MPs towards the Conservative rebels side. If all of that was not enough, a new poll showed that half of the British voters believe that Theresa May is incapable of getting the correct Brexit Deal and that 63% of voters disapproved of the British government’s handling of the Brexit negotiations. The Brexit path seems to be getting more and more bumpy and narrow for the British Government and it could provide a turbulence for the GBP. GBP/USD traded in a sideways manner yesterday and during today’s Asian morning staying well between the support line of 1.3460 (S1) and the resistance line of 1.3620 (R1). We expect the pair to continue to trade in a sideways manner and are a bit worried that the risks could be tilted to the downside of the pair. Should the bears have the upper hand we could see cable breaking the 1.3460 (S1) support line and aim for the 1.3330 (S2) support barrier. On the other hand, should the bulls take the driver’s seat we could see them drive the pair above the 1.3620 (R1) resistance level and aim for the 1.3684 (R2) resistance hurdle.
- Support: 1.3460 (S1), 1.3330 (S2), 1.3460 (S3)
- Resistance: 1.3620 (R1), 1.3684 (R2), 1.3784 (R3)
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