USD weakens as US CPI rates slowdown

The USD was on the retreat yesterday especially against the JPY, as the US CPI rates slowed down for November, solidifying the market’s expectations for a possible easing of the Fed’s aggressive hawkish stance. The opinion that it’s time for the Fed to downshift to 25 basis points rate hikes seems to be gaining traction among Fed policymakers and Philadelphia Fed President Harker’s comments about this issue were characteristic. Philadelphia Fed President Harker stated that “Hikes of 25 basis points will be appropriate going forward” an opinion that was also shared by Atlanta Fed President Bostic. It seems that a consensus is slowly building up within the Fed for the bank to start easing on its monetary policy tightening. Today we note the release of the preliminary University of Michigan consumer sentiment for January which is to provide a gauge on how optimistic the average US consumer is. US stock markets were on the rise as a possible easing of the Fed’s hawkish stance tended to reduce the worries for a possible recession in the US economy. Yet market attention may start shifting away from the FX market and towards the US equities markets, given that the earnings season has kicked off. Today we get the earnings releases of large banks namely JP Morgan, Bank of America and Citigroup, while the chorus of large banks is to continue on Tuesday with Goldman Sachs and Morgan Stanley. At the same time, gold’s prices tended to benefit from USD’s weakening, reaching levels not seen since May and we expect the negative correlation of the two trading instruments to be maintained in the coming week and should the USD continue to weaken we may see gold’s price gaining further. On the commodities front, oil prices edged higher yesterday on hopes that demand from China would be on the rise but also the weakening USD and the market’s expectations for a Fed pivot could provide additional support for black gold’s prices. On the other hand, the fundamentals mentioned before may have already been priced in by the market thus the possibility of an easing of the bullish tendencies or even a correction lower should not be underestimated.

EUR/USD was on the rise yesterday yet seems to have hit a ceiling at the 1.0855 (R1) resistance line. We tend to maintain our bullish outlook for the pair given that the RSI indicator below our 4-hour chart is above the reading of 70 highlighting the dominance of the bulls, yet may also imply that the pair has reached overbought levels and is ripe for a correction lower. Should the bulls maintain control over the pair’s direction, we may see EUR/USD breaking the 1.0855 (R1) line and aim for the 1.1000 (R2) resistance base. Should the bears take over, we may see the pair reversing course and breaking the 1.0715 (S1) line.

Dow Jones rose yesterday breaking the 34060 (S1) resistance line, now turned to support. We tend to maintain our bullish outlook as long as the upward trendline guiding the pair remains intact. Should the buying interest be maintained we may see the index aiming if not breaching the 34700 (R1) resistance line. Should on the other hand the sellers take the initiative, we may see the index dropping breaking the prementioned upward trendline, break the 34060 (S1) support line and aim for the 33430 (S2) support level. 

Other highlights for the day:

Today in the European session, we note the release of the UK’s GDP and manufacturing output growth rates for November, Sweden’s CPI rates for December, France’s final HICP rates for the same month and the Eurozone’s industrial output growth rates for November. In the American session, we get the preliminary US University of Michigan consumer sentiment for January. On the monetary front, we note that in the American session, Minneapolis Fed President Kashkari and Philadelphia Fed President Harker are scheduled to speak. During Monday’s Asian session, we get from Japan the corporate goods growth rate and the chain store sales growth rates for December.   

EUR/USD H4 Chart

Support: 1.0715 (S1), 1.0585 (S2), 1.0440 (S3)

Resistance: 1.0855 (R1), 1.1000 (R2), 1.1180 (R3)

US 30 Cash H4 Chart

Support: 34060 (S1), 33430 (S2), 32500 (S3)

Resistance: 34700 (R1), 35500 (R2), 36620 (R3)

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