Daily Analysis | 23 January 2018
The US Senate was able to reach a bridging funding bill on Monday as Democrats accepted Republican promises about a wide immigration debate in the near future. The agreement was made possible by the intervention of moderate Republicans and the fear of Democrats being blamed for the disruptive shutdown. President Trump signed the bill which funds the US government until the 8th of February and reopened the US government. However, there may be political repercussions for the Democrats as members expected a harder stance. The markets were able to absorb the effects of the current crisis and the next appointment is set as mentioned before for the 8th of February. US Dollar did not react to the news, however, the latest developments are expected to support the USD as confidence arises again for the US political system. Yesterday Monday, the EUR/USD broke the 1.2230 (S1) resistance level (now turned to support) and hovered slightly above it, as it traded in a sideways manner overall. We expect the pair to continue to trade in a sideways manner, at least for today. The German and Eurozone financial data due to be released today could give the pair a more bullish tone, however. Should the pair come under buying interest we could see it breaking the 1.2355 (R1) resistance level, however currently it seems to be lacking the dynamics to threaten the 1.2495 (R2) resistance zone. On the other hand, should it come under selling interest, we expect the pair to break the 1.2230 (S1) support line and we could see the pair head for the 1.2100 (S2) support level.
- Support: 1.2230(S1), 1.2100(S2), 1.2000(S3)
- Resistance: 1.2355(R1), 1.2495(R2), 1.2600(R3)
BoJ remained on hold
During the Asian day today, BoJ announced that it will keep its interest rate unchanged at -0.10%. However, in the accompanying statement, there is a slightly more optimistic tone on the inflation rate and more confidence about the Japanese economy hitting the 2% inflation target in 2019/20. BoJ expects, the Japanese economy to expand moderately and will maintain the massive stimulus program until inflation rate will reach the target. The two points mentioned above should be indicative for BoJ not changing its ultra-loose policy until the inflation target is met. Despite that, media reports suggest that BoJ could be on hold for the first semester, only to speed up in the second half and start gradually changing its policy. The USD/JPY was weakening upon release of BoJ’s decision, reflecting BoJ’s optimistic view on inflation, however, should current policy continue, it could weaken over the long run. USD/JPY yesterday rose breaking the 110.00 (R1) resistance level, only to break it again by dropping reflecting the strengthening of the JPY upon release of BoJ’s interest decision, as described before. We see the case for the pair to trade in a sideways manner in the short term, with a slightly bullish tone as it could reflect further recovering from BoJ’s interest decision announcement. Should the bulls be in the driver’s seat, we expect the pair to break the 110.90 (R1) resistance level and aim for the 111.35 (R2) resistance hurdle. On the other hand should the bears be in charge, the pair could break the 110.45 (S1) support level and aim the 109.9 (S2) support barrier.
- Support: 110.45(S1), 109.90(S2), 109.30(S3)
- Resistance: 110.90(R1), 111.35(R2), 112.00(R3)
On other economic highlights for today: During the European morning, we get the ZEW indicators on economic sentiment and current situation for January and Eurozone’s consumer confidence also for January.
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