December’s US PPI rates as a warm-up

The USD edged lower against its counterparts yesterday and during today’s Asian session, in a correction that does not alter its upward direction and may have been anticipated after four days of continuous strengthening. On USD’s fundamentals, we note the news regarding Trump and his legal issues, yet while interesting for the time being, they do not seem to affect the markets. After the release of the hotter-than-expected employment data for December on Friday, we turn our attention to inflationary pressures in the US economy for the past month, an issue that may more decisively determine the Fed’s actions. Today we get the PPI rates for December which may act as a prelude for the release of the CPI rates tomorrow, hence may generate substantial volatility among market participants not only for the USD in the FX market but also for US stock markets and gold’s price. Should the rates fail to slow down or even accelerate implying that at a producer’s level, inflationary pressures are resilient, we may see the USD getting some support and weighing on US equities and gold’s price.  On the monetary front, we highlight the speeches of Fed officials and should they express increased doubts for further rate cuts, the USD may get further support and vice versa.

Against the JPY, USD remained relatively stable as USD/JPY maintained its sideways motion just below the 158.45 (R1) resistance line. We maintain our bias for the sideways motion to be maintained for now, yet the RSI indicator despite correcting lower, remains above the reading of 50, implying a possible bullish predisposition of the market for the pair. Should the bulls regain control over the pair, we may see USD/JPY breaking the 158.45 (R1) resistance line and start aiming for the 161.90 (R2) resistance base, which is an almost 40 year high. On the flip side for the adoption of a bearish outlook the bar is high, as we would require the pair to break the 154.65 (S1) support line and start aiming for the 151.35 (S2) support barrier.     

On the commodities front, oil prices got a boost since Friday. Some analysts are mentioning that the stronger Dollar may have contributed to the rise of oil prices yet that remains currently maybe a secondary issue in our opinion. We highlight that the U.S. Treasury Department on Friday imposed sanctions on Gazprom Neft and Surgutneftegas as well as 183 vessels that trade oil as part of Russia’s so-called “shadow fleet” of tankers, as per Reuters. The sanctions practically could strain the supply chain of the international oil market, creating possibly a bottleneck and thus have a bullish effect on oil prices. Today, we note the release of the weekly API crude oil inventories figure, which showed a considerable drawdown of US oil inventories in the past week and should we see today’s release showing further reduction of US oil inventories, implying a tight US oil market we may see oil prices getting further support.

WTI’s price action continued to rise yesterday testing the 77.85 (R1) resistance line. We maintain our bullish outlook for the commodity’s price as long as the price action respects the upward trendline which has steepened its slope since the 27^th of December. Also we highlight that the RSI indicator is currently above the reading of 70, implying on the one hand that the bullish sentiment for the commodity’s price is strong, yet at the same time may imply that WTI’s price is at overbought levels and may be ripe for a correction lower. Similar signals are being send by the fact the price action has broken above the upper Bollinger band. Should the bulls maintain control over the commodity’s price, we may see it breaking the 77.85 (R1) resistance line and start aiming for the 82.10 (R2) resistance hurdle. On the other hand a bearish outlook for the time being seems remote and for it to emerge we would require WTI’s price to drop, break initially the prementioned upward trendline, in a first signal that the upward motion has been interrupted, continue lower and break the 72.20 (S1) support line and start aiming for the 66.85 (S2) support base.                 

Other highlights for the day:

In tomorrow’s Asian session, we get Japan’s Tankan indexes for January. 

USD/JPY Daily Chart

• Support: 154.65 (S1), 151.35 (S2), 149.40 (S3)
• Resistance: 158.45 (R1), 161.90 (R2), 164.50 (R3)

WTI Daily Chart

• Support: 72.20 (S1), 66.85 (S2), 61.65 (S3)
• Resistance: 77.85 (R1), 82.10 (R2), 87.00 (R3)

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