The USD weakened against a number of its counterparts yesterday, as a subdued outlook on US interest rates and the economy weighed on the greenback. The Fed’s outlook accelerated the slide of the US treasury yields, as caution had already started to settle in. Also the threat of a possible partial federal government shutdown, added to the overall effect of the risk off sentiment. Analysts, see the weakening of the USD, as a classic case of risk off lifting the yen against the USD, which was not happening in the past few months. Analysts also point out that, US markets, particularly equities could be dictating direction for the USD in the near term. We see the case for the USD to remain under pressure as we may have to wait until New Year for the risk off sentiment to settle. USD/JPY tumbled yesterday, breaking consecutively the 112.15 (R2) and the 111.65 (R1) support levels (now turned to resistance) and stopped the fall at the 111.15 (S1) support line. Should the bearish sentiment on the USD continue for today, we could see the pair dropping even lower. Please be advised that, the RSI indicator in the 4 hour chart has reached a reading below 30, implying a rather overcrowded short position. Should the bears continue to dictate the pair’s direction in today’s European and American sessions, we could see it breaking the 111.15 (S1) support line and aim if not break the 110.70 (S2) support level. Should on the other hand the bulls take over, we could see the pair rising, breaking the 111.65 (R1) resistance line and aim for the 112.15 (R2) resistance zone.
BoE remains on hold and the pound weakened
Bank of England kept interest rates on hold at 0.75% as was widely expected, warning about the risks of a no deal Brexit, causing the pound to weaken. BoE’s meeting minutes showed a very uncomfortable position for the bank, surrounded by the political chaos of a no deal Brexit. The BoE stated that Brexit uncertainty had “intensified considerably” over the past month and inflation could drop below 2%, by falling oil prices. Analysts, point out that the inflation pressures may not be so significant for the bank to prepare the markets for and if the BoE’s aim had been not to move the market’s, then that’s what they achieved, according to media. We expect the pound to remain under pressure for the near term as Brexit uncertainty continues. Cable resembled a battle of the weakest at some points yesterday, yet remained range bound between the 1.2700 (R1) resistance line and the 1.2630 (S1) support level. The sideways movement of the pair could be maintained today, however the pair could prove sensitive to any Brexit headlines as well as USD’s bearish sentiment. Should the market start favoring long positions of the pair, we could see cable breaking the 1.2700 (R1) resistance line and aim for the 1.2795 (R2) resistance barrier. On the other hand, should the pair come under the selling interest of the market, we could see its price action breaking the 1.2630 (S1) support line and aim for the 1.2555 (S2) support zone.
In today’s other economic highlights:
In today’s European session, we get Germany’s GfK Consumer Sentiment for January and from the UK the final GDP growth rate for Q3 and the current account balance for Q3. In a busy American session, we get from the US the durable goods orders growth rates for November, the final release of the GDP for Q3, the consumption growth rate and the Core PCE price index for November, the final Michigan Consumer Sentiment for December and the Baker Hughes oil rig count. From Canada we get the GDP and the retail sales growth rates for October. From the Eurozone we get the preliminary consumer confidence indicator December. From all of us here at IronFX we would like to wish you solid trading and best wishes for a merry Christmas.
USD/JPY H4
Support: 111.15 (S1), 110.70 (S2), 110.30 (S3)
Resistance: 111.65 (R1), 112.15 (R2), 112.72 (R3)
GBP/USD H4
Support: 1.2630 (S1), 1.2555 (S2), 1.2485 (S3)
Resistance: 1.2700 (R1), 1.2795 (R2), 1.2880 (R3)
