November’s PCE rates, the last big test for USD before year’s end

The USD continued to gain against its counterparts yesterday, especially against the JPY and attention today is shifted to the release of the US PCE rates for November, the Fed’s favourite inflation tool. The rates are expected to accelerate both on a core and headline level and if actually so could support the USD as they would imply a persistence of inflationary pressures in the US economy, thus also supporting the Fed’s intentions to slow down its rate-cutting path. On a monetary level, the Fed’s interest rate decision is expected to continue to support the USD, while on a fundamental level, the possibility of the US government shutting down could weigh on the USD.

USD/JPY rose yesterday yet seems to correct lower during today’s Asian session, before reaching the 158.45 (R1) resistance line. We maintain a bullish outlook for the pair as long as the upward trendline incepted since the 9 of December remains intact. Furthermore, the RSI indicator remains just below the reading of 70, implying a strong bullish sentiment of the market for the pair. Should the bulls maintain control over USD/JPY, we may see the pair breaking the 158.45 (R1) resistance line, with the next target for the bulls being set at the 161.90 (R2) resistance level. A bearish outlook seems remote currently and for its adoption the pair would have to break the prementioned upward trendline, signaling an interruption of the upward motion, and continue to break the 154.60 (S1) support line and aim if not breach the 151.35 (S2) support base.

North off the US border Loonie traders are expected to keep a close eye on the release of Canada’s retail sales growth rate for October. The rates are expected to accelerate and if the rates reach or surpass market expectations we may see the Loonie getting some support. On a monetary policy level, BoC’s dovish intentions tend to weigh on the Loonie, while on a fundamental level, US President-elect Trump’s intentions to slap tariffs on US imports from Canada tend to weigh on the CAD. Oil’s prices seem to remain confined in a rangebound movement failing to play any role in the Loonie’s direction.

Corrected lower yesterday after Wednesday’s rally by breaking the 1.4420 (R1) support line now turned back to resistance. Despite an extension of the correction lower being possible we tend to maintain a bullish outlook for the pair. We note that the RSI indicator remains above the reading of 70 implying a strong bullish sentiment of market participants for the pair , yet at the same time also that the pair may be at overbought levels and thus ripe for a wider correction lower. On the other hand the price action, dropped below the upper Bollinger band implying that there is some room for the bulls to play. Should the bulls renew their dominance over the pair, we may see USD/CAD breaking this time clearly the 1.4420 (R1) line, paving the way for the 1.4560 (R2) level. For a bearish outlook we would require USD/CAD dropping breaking the 1.4270 (S1) support line, the prementioned upward trendline and aiming if not reaching the 1.4110 (S2) barrier.

Across the Atlantic, UK’s BoE remained on hold as was widely expected at 4.75% with a 6-3 split decision. It appears that the bank remains concerned with inflation potentially remaining sticky in the UK. Despite the bank’s concerns for inflation possibly advising for a cautious approach towards further rate cuts, the narrower-than-expected split in the votes indicated a growing dovish sentiment within the Monetary Policy Committee given increased economic concerns. Overall, we see the decision as a dovish hold that could continue weighing on the pound on a monetary level.

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Today, we get UK’s retail sales for November, UK’s December CBI distributive trades and the final US University of Michigan consumer sentiment for December , while ECB Governing council member Makhlouf speaks.