Wednesday 17 January 2018
Subdued German and Italian inflation and headlines that the ECB is unlikely to drop its pledge to keep buying bonds until inflation heads to target helped the dollar recover some ground and weighed on the single currency.
EUR/USD will be in focus ahead of next week’s ECB presser held on the 25th of this month. Eyes will also be on the SPD in Germany that is meeting on 21st January where investors will eagerly await to see if they decide to progress with coalition talks in Germany. The single currency traded between a wide range of 1.2195/2285. As for data, China’s Q4 GDP and EZ Dec inflation (final) area on the cards for Wednesday’s trade.
Technicals remain bullish with monthly RSI leaning positive while a long lower wick on Tuesday’s stick offers a positive bias also. However, the daily RSI is overbought and a breakdown out of a phase of consolidation could target 1.2240/60 that had been a strong static support area in Dec 2014 ahead of 1.2200 on the wide comes as a potential resistance again. 1.2432 as the 200 MMA comes as the next key upside target through 1.2300.
Sterling was little changed despite the miss in UK Dec CPI that was down a touch to 3% vs +3.1% in November.
GBP/USD closed back above the 10-4hr SMA at 1.3785. Sterling traders shrugged off the headline data and instead concentrated on producer prices, where input prices slipped more than expected while output prices were firmer than expected. Tusk hit the wires and says EU “still open” to Britain changing mind on Brexit
GBP/USD remains better bid while trading above 1.3658/71 as the September highs and a double Fibonacci retracement area. Momentum on the daily chart remains solid while RSI stayed above the 70 mark on Tuesday. The recent high of 1.3820 opens a target for 1.3836 as the February 2016 low. 1.4000 is the next hurdle as the 26th March 2016.
Kuroda hit the wires in Asia and reiterated his commitment in Asia to continue to pursue policies that will push inflation toward the 2% target. Finance Minister Aso also spoke and against excess moves in exchange rates. For the NY session, USD/JPY traded between 110.24/98 on the day, closing at 110.37, but for the most part was consolidating above 110.32 NY session low, the 100% Fibo target off the Dec 12-14 drop.
The price broke the 50% of Sep-Nov rise at 111.03 and the 110.85 support area down to 110.32 as the recent low, (100% fibo). However, 110 is in the spotlight now while RSI trades below 30 on the daily sticks with the 10-D SMA steepening lower below the 21-D SMA and below the 100-D SMA and now breaking the 50-D SMA.
After breaking the 26,000 level, the DJIA closed marginally lower on Tuesday in the sharpest daily reversal in nearly two years, while oil prices weighed on energy shares and CBOE Volatility Index rose nearly 15%.
Dow industrials had rallied by more than 1% to set the intraday all-time high above 26,000. However, political and US data disappointed and there was not enough drive given a New York Times headline over Steve Bannon who was subpoenaed last week by special counsel Robert Mueller who will testify as part of the probe into possible links between Trump associates and Russia. At the same time, the CBOE Volatility Index, rose 15% on the day, showing a low appetite for risk.
The bullish picture remains intact on a longer-term outlook although both RSI and momentum are above 2017’s peak and not much below 2016’s, indicating a correction is due to extreme overbought territory. The daily sticks wicks on Monday also offer a consolidation phase while the 4hr chart has turned bearish with tests of the 10 and 21 SMAs.
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