Slowdown of final US GDP rate weakens USD

The USD edged lower against its counterparts yesterday, as the GDP rate for Q3 was lower than estimated, landing at 4.9% yoy in the final release. Also, the Philly Fed Business index disappointed traders as it unexpectedly contracted deeper into the negatives. On the other hand, the weekly initial jobless claims figure rose less than expected, highlighting the tightness of the US employment market, which may have eased the bearish tendencies for the greenback somewhat. On the other hand, the US stock markets got renewed support as the slowdown of the US GDP rate may have intensified market expectations for extensive rate cuts by the Fed in the coming year. Attention today is expected to fall on the release of the US Core PCE price index for November, the Fed’s favourite inflation metric and should the rates slow down further, we may see the USD weakening as the market’s expectations for the bank to proceed with extensive rate cuts in the coming year may strengthen further.

Across the Atlantic we note the release of UK’s GDP rates for Q3 which showed a contraction of the UK economy for the past quarter and intensified out worries for its outlook. On the other hand, the pound seems to have gotten some support from the simultaneous release of the retail sales growth rate for November, which accelerated beyond market expectations.

GBP/USD remained well within the boundaries of its sideways motion namely the 1.2735 (R1) resistance line and the 1.2600 (S1) support level. We tend to maintain our bias for the sideways motion of cable to continue for now given also that the RSI indicator continues to run just above the reading of 50, implying a rather indecisive market. For a bullish outlook, we would require the pair to break the 1.2735 (R1) resistance line and aim for the 1.2880 (R2) resistance level. Should the bears take over, we may see the pair breaking the 1.2600 (S1) support line and aim for the 1.2445 (S2) support level.

During today’s Asian session, Japan’s November CPI rates came out and showed that inflationary pressures in the Japanese economy slowed down even further, corroborating BoJ’s dovish narrative that inflationary pressures are not sustainable and that may keep the lid on any bullish tendencies for the Yen, yet the release as such seemed to have little effect on JPY at the time of the release.

On a technical level USD/JPY dropped breaking the 143.00 (R1) support line now turned to resistance. We tend to maintain a bearish outlook for the pair as long as the downward trendline, incepted since the 19 of December remains intact and given that the RSI indicator remains close to the reading of 30 implying the presence of a residue of a bearish sentiment. Should the selling interest be maintained we may see the pair breaking the 141.50 (S1) support line and aim for the 139.75 (S2) support level. Should the pair find extensive buying orders along its path, we may see the pair reversing course, breaking the prementioned downward trendline, in a first signal of an interruption of the downward movement and continuing to break the 141.50 (R1) resistance line and aim for the 143.00 (R2) resistance level.

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Today in the American session, we get the US consumption rate and Core PCE price index, both for November, Canada’s GDP rate for October and the final US University of Michigan consumer sentiment for December. During Monday’s Asian session, we note that BoJ Governor Ueda is scheduled to speak, yet given that markets are to be closed for the Christmas holiday, we do not expect a major impact. Please note that given the season’s holidays, we may see lots of traders being absent and thus thin trading conditions may apply to the markets with unusual market reactions.