Market reconsidering Fed’s intentions and Trump’s economic policies

The USD strengthened against its counterparts yesterday, as the market seems to be reconsidering the possible effect of Trump’s proclaimed economic policies. Overall, it seems to become clearer that slapping tariffs on US imports either from China or Europe and a substantial reduction of inbound immigration in conjunction with a sweep of immigrants living in the US, could have an inflationary effect in the US economy.  Also, the market’s expectations for the Fed to proceed with a 25 basis points rate cut have been dramatically reduced, with Fed Fund Futures implying currently a 53% probability for such a scenario to materialise. Overall, both of these issues could provide further support for the USD if enhanced. As for today’s financial releases we note the release of the weekly initial jobless claims figure and November’s Philly Fed Business index which could potentially move the USD. Also please note that a number of Fed policymakers are scheduled to speak today and should they imply that a slower rate-cutting path would be appropriate for the bank, we may see the support for the USD being enhanced. 

EUR/USD dropped yesterday bouncing on the 1.0530 (S1) support line. We tend to maintain a bias for a sideways motion, yet the RSI indicator is near the reading of 30, implying a strong bearish sentiment of the market for the pair, while the price action has some distance until the lower Bollinger band implying that the bears have some room to play should they wish so. For a bearish outlook though, we would require the pair’s price action to break the 1.0530 (S1) support line and start actively aiming for, if not reach the 1.0450 (S2) support level. A bullish outlook for the time being seems to be remote and for its adoption we would require the pair’s price action to form a number of higher peaks and troughs and we set the 1.0670 (R1) resistance line as the next possible target for the bulls. 

Across the world we note that JPY got some support during today’s Asian session. The main issue underpinning JPY’s direction at the current stage seems to be BoJ’s intentions. BoJ Governor Ueda in a rather balanced statement last week, highlighted the possibility of a rate hike in the December meeting and today mentioned that BoJ will “seriously” take into account foreign exchange-rate moves in compiling its economic and price forecasts as per Reuters in another hawkish signal. We highlight the release of Japan’s CPI rates for October in tomorrow’s Asian session and a possible acceleration of the rates could increase the possibility of a rate hike by BoJ thus supporting the JPY and vice versa .     

USD/JPY edged lower during today’s Asian session, testing the 154.65 (S1) support line. The drop of the pair’s price action seems to verify the pair’s hesitation to form a higher peak than the one on the 15^a. of November. In its downward motion the pair’s price action seems to be breaking the upward trendline that has been guiding it since the 30^a. of September, hence we switch our bullish outlook in favour of a sideways motion bias initially. Should the bears lead the pair’s price action, we may see USD/JPY breaking the 154.65
(S1) support line actively aiming for the 151.35 (S2) support hurdle. Should the bulls regain control over the pair’s direction we may see it aiming for the 158.45 (R1) resistance base.       

Other highlights for the day:

Today we get Norway’s GDP rate for Q3, France’s business climate, UK’s CBI trends for November, from Turkey CBT’s interest rate decision and Eurozone’s preliminary consumer confidence for November. As for speakers we note that ECB’s Cipollone, Buch, Lane, Holzmann, Kazimir and Vujcic are to make statements as are also RBA Governor Bowman, Cleveland Fed President Hammack, Chicago Fed President Goolsbee and Fed Vice Chair Barr. In tomorrow’s Asian session, we highlight the release of Australia’s and Japan’s November preliminary PMI figures and the UK’s consumer confidence for November.

EUR/USD Daily Chart

• Support: 1.0530 (S1), 1.0450 (S2), 1.0350 (S3)
• Resistance: 1.0670 (R1), 1.0775 (R2), 1.0890 (R3)

USD/JPY Daily Chart

• Support: 154.65 (S1), 151.35 (S2), 149.40 (S3)
• Resistance: 158.45 (R1), 161.90 (R2), 164.50 (R3)

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