Daily Analysis | 04 January 2018
The US Dollar is on the rise after the release of the FOMC minutes and a number of financial indicators with good results. According to the FOMC’s meeting minutes, policymakers showed worried about the currently low inflation rate, saw recent tax cuts as a possible boost to consumer spending which could in its turn accelerate the inflation rate. Overall, the economic balance remains the same with low unemployment and good growth on the one side, stubbornly low inflation on the other. In the future the Fed is expected to continue to pursue a gradual approach in raising interest rates and could pick up the pace should inflation rate acceleration allow it. Currently, the market has priced a 73.8% probability for a rate hike in March, while it expects the Fed to remain on hold in the January meeting.
Japanese “hard to melt” snow
BoJ’s Governor Kuroda stated that BoJ will patiently maintain its loose monetary policy. One of his characteristic comments was “Unlike snow, Japan’s deflationary mindset won’t melt easily”. JPY had good financial data regarding the manufacturing PMI coming out during today’s Asian morning, which underscored a steady economic growth into 2018. Specifically the Nikkei manufacturing final PMI for December, despite missing the preliminary figure slightly, still was the highest since February 2014. Further on Japanese finance minister Aso stated that the economy has changed and the labour environment has shifted. Hence there could be an expectation of the labor market delivering an increase in wages, which could, in turn, boost spending and inflation. Should that be the case we could see an ending in the monetary easing of BoJ, however, the scenario is still considered as far-fetched.
The USD/JPY had a clear break above the 112.30 (S1) support line yesterday after the release of the FOMC meeting minutes until late today’s Asian morning. The pair could be influenced by the US fundamental news due out today. Other than that, given yesterday’s strengthening of the US Dollar, we expect the pair to continue to trade in a sideways manner with the risks this time being tilted to the upside. Should the bulls take the reins, the pair could break the112.90 (R1) resistance line and aim for the 113.15 (R2) resistance level. Should the bears take the driver’s seat, we could see the pair drop below the 112.30 (S1) support barrier and head towards the 112.02 (S2) support zone.
- Support: 112.30(S1), 112.02(S2), 111.65(S3)
- Resistance: 112.90(R1), 113.15(R2), 113.77(R3)
Today’s other economic highlights
As for today’s other economic data, during the European morning, we get Eurozone’s final Markit Composite PMI which is expected to remain unchanged.
The cable as expected was influenced by the US news and dropped yesterday, and during today’s Asian morning it rebounded somewhat. In all of the aforementioned price action, the pair remained above the support level of 1.3460 (S1) and below the resistance level of (1.3620 (R1). It should be noted that the pair remained above the upward trend line which started on the 27th of December and continues until these lines are written. The pair could continue to trade in a sideways manner with the risks tilted to the upside. As yesterday, we expect the pair to be influenced by fundamental news from both sides of the pair. Should the pair come under selling interest again it could break the 1.3460 (S1) support line and aim for the 1.3330 support barrier. On the other hand, should cable come under buying interest we expect the pair to reach the 1.3620 (R1) resistance level and should that be breached it could aim for the 1.3684 (R2) resistance level.
- Support: 1.3460(S1), 1.3330(S2), 1.3460(S3)
- Resistance: 1.3620(R1), 1.3684(R2), 1.3784(R3)
Later on, we get from the US the ADP National Employment Report which could move the greenback as it is perceived by many investors as a forerunner for the Non-Farm Payroll report which is due out tomorrow. Last but not least we get the Crude Oil inventories which could prove a market mover for oil, given the commodity’s recent rising trend.
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