Focus on US October inflation data and Q3 GDP rate

The FX market provided some mixed signals in the past 24 hours, yet overall the USD seems to have edged lower against its counterparts. We expect the USD to strengthen its grip over the FX market today, given that we get more high-impact financial releases from the US in today’s American session. On a monetary level, the release of the Fed’s November meeting minutes tends to highlight the bank’s cautious approach towards cutting rates further. On the one hand the bank’s policymakers seemed to agree that inflation is easing sustainably towards the bank’s 2% target, yet at the same time also noted that growth remains solid and the US employment market conditions have eased, while there may be also increased uncertainty about the path of the US economy. Overall, we see the case for the document to be supportive for the USD as there is no certainty for extensive further rate cuts to come, but a “gradual” approach.  Today in the early American session we note from the US the release of the durable goods orders growth rate for October which is to provide a glimpse at how much confidence US businesses have in actually investing in the US economy, yet the release may be eclipsed by the simultaneous release of the revised GDP rate for Q3. Should the rate verify the growth reported by the preliminary release or even accelerate we may see the USD gaining some support, while a possible slowdown of the rate could weigh on the USD. Later on, we get from the US the release of the Fed’s favourite inflation metric for October, namely the PCE rates. The release may be characterised as the last big test for the greenback before the release of the US employment report for November next week. Should the rates accelerate, or even fail to slow down, implying a persistence of inflationary pressures in the US economy, we may see the USD gaining as it could force the market to reposition itself regarding its expectations for the Fed’s intentions.        

In the FX market, USD/JPY intensified its drop yesterday and during today’s Asian session, allowing us to form a downward trendline guiding the pair lower. We abandon the sideways motion bias in favor of a bearish outlook and we intend to keep it as long as  the downward trendline remains intact. Should the bears maintain control over the pair as expected we may see it breaking the 151.35 (S1) support line with the next possible target for the bears being the 149.40 (S2) support level. For a bullish outlook, which we currently view as remote yet worth exploring, the pair’s price action would have to break initially the prementioned downward trendline in a first signal that the downward motion has been interrupted and continue to break also the 154.65 (R1) resistance line clearly.  

As for US equities we note a slight rise with US 500 testing record high levels at the 6030 (R1) resistance line. We maintain our bullish outlook as long as the upward trendline remains intact and given that the RSI indicator is currently near the reading of 70 implying a bullish market sentiment. Should the bulls maintain control over the index, we may see its price action entering unchartered waters by breaking the R1 and set as the next possible target for the bulls the 6250 (R2) resistance level. For a bearish outlook we would require the index to reverse course by breaking the prementioned upward trendline signalling the end of the upward movement and continue lower by breaking the 5890 (S1) support line and taking aim of the 5675 (S2) level.   

Other highlights for the day:

Today we get Germany’s Gfk consumer sentiment figure for December while oil traders may be more interested in the release of the EIA weekly crude oil inventories figure after API reported a wide drawdown of -5.935 million barrels and implying a tighter US oil market. In tomorrow’s Asian session, we get Australia’s capital expenditure rate for Q3. On a monetary level, we note the speech by Riksbank Deputy Governor Jansson and ECB Chief Economist Lane.

USD/JPY Daily Chart

• Support: 151.35 (S1), 149.40 (S2), 146.95 (S3)
• Resistance: 154.65 (R1), 158.45 (R2), 161.90 (R3)

US500 Cash Daily Chart

• Support: 5890 (S1), 5675 (S2), 5440 (S3)
• Resistance: 6030 (R1), 6250 (R2), 6500 (R3)

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

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