Market’s focus on US December CPI rates

The USD edged lower yesterday against its counterparts, yet the relative stabilisation of the greenback over the past week seems to be maintained as the market focuses on the release of the US CPI rates for December.  The headline rate is expected to tick up to 3.2% on a yearly level while the core rate is expected to slow down to 3.8% yoy if compared to November’s 4.0% yoy. Overall, should the actual rates meet their forecasts we may see them sending some mixed signals about inflationary pressures in the US economy. Yet there seems to be some hesitation for the CPI rates to slow down which partially is understandable given the Christmas period. Yet if such CPI rates are combined with the stronger-than-expected US employment report for the same month, the release, if expectations are realised or are even higher, the release may allow the Fed to delay any rate cuts in contrast to the market expectations and thus provide some support for the USD. On the other hand, we have to note that December’s US employment report which theoretically should also support the USD did not have a lasting effect, indicative of a market that sticks firm to its expectations despite warnings from Fed officials. Please note that the release may have wider effects beyond the FX market, and a possible acceleration of December’s CPI rates could weaken US stock markets and gold’s price.  

USD/JPY edged higher yesterday yet failed to reach the 146.30 (R1) resistance line and corrected lower. We tend to reject the idea of a double top formation being about to form, yet recognise that the pair seems to have a difficulty forming higher highs despite the upward trendline guiding it since the 2^a. of January. The RSI remained above the reading of 50 implying a residue of a bullish market sentiment still being present for the pair and as long as the upward trendline remains intact we maintain our bullish outlook. Should the pair find fresh buying orders along its path we may see USD/JPY breaking the 146.30 (R1) resistance line and aim for the 148.25 (R2) resistance level. On the other hand should the bears take over, we may see USD/JPY breaking the prementioned upward trendline, in a first signal that the upward movement has been interrupted, break the 144.45 (S1) support line and aim for the 143.00 (S2) support level.      

Tomorrow, during the Asian session, the Aussie gained some ground a movement that was also allowed by the substantially higher–than–expected trade surplus figure for November as it rose to 11.437 billion AUD. The release highlighted how the Australian economy benefited from its international trading activities in the particular month, with the import growth rate dropping deep into the negatives and the export growth rate accelerating. During tomorrow’s Asian session, we note the release of China’s trade data for December and should the import growth rate accelerate we may see AUD gaining further ground.  

AUD/USD maintained its sideways motion as was expected in yesterday’s report, just below the 0.6725 (R1) resistance line. The RSI indicator continues to run along the reading of 50, implying a rather indecisive market which may allow for the sideways motion of the pair to be maintained. To switch our sideways bias in favour of a bullish outlook we would require the pair to break the 0.6725 (R1) resistance line and aim for the 0.6820 (R2) resistance nest. For a bearish outlook we would require the pair to aim if not breach the 0.6620 (S1) support line and thus open the way for the 0.6515 (S2) support base.    

Other highlights for the day:

Today in the European session we note the release of the Czech Republic’s CPI rates for December. In the American session, besides the US CPI rates, we also note the release of the weekly initial jobless claims figure, while on the monetary front, Richmond Fed President Barkin is scheduled to speak. During tomorrow’s Asian session we get from Japan the Current account balance for November and from China we get the inflation metrics and trade data, both being for December.  

USD/JPY H4 Chart

Support: 144.45 (S1), 143.00 (S2), 141.50 (S3)

Resistance: 146.30 (R1), 148.25 (R2), 149.70 (R3)

AUD/USD H4 Chart

Support: 0.6620 (S1), 0.6515 (S2), 0.6400 (S3)

Resistance: 0.6725 (R1), 0.6820 (R2), 0.6895 (R3)

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