Markets restart their engines

As the markets restart their engines, the USD seems to be recovering some of the lost ground of the past few days. On a monetary policy level, we noted that the market’s expectations for the Fed to cut rates six times in 2024, starting on March and that tends to weigh on the greenback on a more general level and at the same time allows US stockmarkets to remain at relatively high levels. Attention for this week falls on the release of the US employment report for December on Friday and should the US labour data show an easing of the US employment market’s tightness we may see the market’s expectations for the Fed intensifying and further weighing on the USD.

USD/JPY seems to be struggling with the 141.50 (S1) resistance line on its way downwards. We tend to maintain our bearish outlook for the pair as long as the downward trendline continues to guide the pair and given that the RSI indicator remains near the reading of 30 implying a bearish sentiment on behalf of the market. Should the bears maintain control over the pair as expected, we expect the pair to dive below the 141.50 (S1) support line and aim if not breach the 139.75 (S2) support level. Should the bulls take over we may see the pair breaking the downward trendline, signalling the interruption of the downward movement and also breach the 143.00 (R1) resistance line.

On a deeper fundamental level we note that China’s manufacturing PMI figures for December sent some mixed signals, in a sign that Chinese factories are still struggling to increase economic activity. Overall we tend to expect further easing in monetary policy by the PBoC with a possible rate cut on the horizon in order to support the giant manufacturing sector. Today we note the release of Germany’s manufacturing PMI figure for December which is expected to verify the improvement since November, yet remain below the reading of 50 signalling another contraction of economic activity for Germany’s crucial sector. Overall we tend to maintain our worries for the outlook of the Eurozone, given also Germany’s role as an economic powerhouse of the block and note the weakening of the EUR against the already weak USD.

EUR/USD continued its downward trajectory, breaching the 1.1065 (R1) support line, now turned to resistance. We tend to maintain a bias for the downward motion to continue which would allow us to draw also a downward trendline, showing the limitations of the downward movement. Our bearish outlook is also supported by the RSI indicator breaking below the reading of 50 and continuing to move southwards. Should the bears maintain control over the pair we may see it breaking the 1.0960 (S1) support line. Should the bulls take the reins of the pair’s direction, we may see it breaking the 1.1065 (R1) resistance line and aiming for the 1.1150 (R2) resistance level.

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Today we note the release of Germany’s, the UK and Canada’s final manufacturing PMI figures for December.

As for the rest of the week:

On Wednesday we note the release of Turkey’s CPI rate for December and the US ISM Manufacturing PMI figure for December, while on the monetary front, we note the release of the Fed’s December meeting minutes. On Thursday we get Frances’ and Germany’s preliminary HICP rates for December and from the US the ADP national employment figure for December and the weekly initial jobless claims figure. On Friday, we get Sweden’s GDP rate for November, UK’s Halifax House prices for December, the US and Canada’s employment data for the same month, the US factory orders for November and the ISM non-manufacturing PMI figure for December. On the monetary front we highlight from Australia, RBA’s interest rate decision on the 2nd of January.