US latest batch of data show economy is on solid footing US personal income rose at the same rate as consumer spending in November. The data exceeded expectations and added to the list of encouraging indicators for the final quarter of the year. These indicators are consistent with the Fed’s view of considerable improvement in labor market conditions this year. It is also an indication that wages may be further supported. Durable goods orders for the same month were expected to fall, but instead remained flat, adding to the latest batch of solid data. Military spending helped to lift up the durable goods headline figure, while durable goods orders excluding defense actually fell 1.5% mom, after rising 3% mom in October.
• Nevertheless, the fundamental outlook of the US economy appears to be on a solid footing, following the historic December rate hike by the Fed. If labour market data continue to improve and consumer spending remains healthy, the prospect of 3-4 rate hikes in 2016, as suggested in the Fed’s ‘dot plot’, could materialize. The market currently prices in less rate hikes than the Fed’s dot plot suggests. As a result, if the data continue to improve, USD could regain its glamour, as the market will need to raise its expectations somewhat closer to the Fed’s.
• Overnight: The Bank of Japan released the minutes of its November policy meeting. As usual, these are not the minutes from the most recent meeting but rather from the previous one, during which the BoJ kept its stimulus program unchanged. At their latest meeting the Bank kept its policy rates and QQE size unchanged, however it approved non-unanimously (by a 6-3 vote), the launch of additional measures aimed at encouraging corporate spending and hiring. Through these measures, the BoJ aims to stimulate wage growth in the private sector and boost inflation over the longer term. The minutes of the previous meeting released last night, showed that the members shared the view that it was important that the underlying trend in inflation is reflected in wage negotiations and the BoJ should make policy adjustments without hesitation if that trend changed. Overall, given that this were the minutes of the previous meeting and not the latest one, there was no new information that market participants had not already known. As a result, there was limited impact on JPY at the release.
• Today’s highlights: The US initial jobless claims for the week ended December 18th are expected to have decreased from the previous week, while the 4-week moving average is forecast to increase to 273k from 270.5k previously. Despite the increase in the moving average, a slight improvement in initial jobless claims could support the greenback in the midst of a thin market.
• We have no speakers scheduled on Thursday’s agenda.
The Market
EUR/USD fails to stay below 1.0900
• EUR/USD declined on Wednesday but found some buy orders around the 100-period moving average and then bounced up again to trade above 1.0900. During the early European morning Thursday, the pair seems to be headed for another test at the 1.0975 (R1) territory. A break above that resistance line could push the rate higher, perhaps towards our next resistance at 1.1060 (R2). Looking at our short-term oscillators though, the RSI lies just above 50 and is pointing sideways, while the MACD, fell below its trigger line and seems willing to enter the negative territory. These momentum signs support the case for a minor pullback before the next leg higher. However, the very thin market liquidity could push the prices sharply in either direction on not very much at all. As for the broader trend, given the inability of the pair to break the 1.0800 (S3) barrier, the lower bound of the range it had been trading from the last days of April until the 6th of November, I would maintain my neutral stance.
• Support: 1.0880 (S1), 1.0850 (S2), 1.0800 (S3)
• Resistance: 1.0975 (R1), 1.1060 (R2), 1.1100 (R3)
GBP/USD stays below 1.4900
• GBP/USD advanced on Wednesday and re-entered the downside channel it had being trading since the 7th of December. The pair found some buy order near the 1.4810 (S1) support level, and currently, during the early European trading hours, the pair lies below our 1.4920 (R1) resistance zone. A break above that level is needed to trigger larger bullish extensions and perhaps challenge our next resistance at 1.5030 (R2). Our short-term momentum signs support the case for an advance. The RSI stands just below 50 and is pointing up, while the MACD, although in its negative territory, stands above its trigger line and shows signs it could move higher. As for the broader trend, the dip below 1.4900 signaled a lower low on the daily chart, which keeps the long-term bias to the downside, in my view. As a result, I would treat any near-term advances as a correction of the longer-term downtrend.
• Support: 1.4810 (S1), 1.4710 (S2), 1.4640 (S3)
• Resistance: 1.4920 (R1), 1.5030 (R2), 1.5100 (R3)
USD/JPY fell below 121.00
• USD/JPY tumbled on Wednesday and fell below the round prior support (now resistance) figure of 121.00 (R1). After several attempts to close below that hurdle, the bears gained control and found the strength needed to push the pair lower. During the early European trading session Thursday, the rate seems willing to challenge the 121.35 (S1) support zone. A break below that level could carry larger bearish implications and open the way for the psychological support zone of 120.00 (S2). Looking at our short-term momentum signs, the RSI crossed below 30 and is pointing down, while the MACD, stands between its trigger and zero lines in its negative territory. These momentum signs are neutral to negative and support the case for further declines, at least until the 120.00 (S1) area. As for the broader trend, the break below the 122.20 (R3) resistance zone, the lower boundary of the sideways range the pair has been trading since the 6th of November, keeps the bias to the downside, in my view. As such, any moves that remain limited below that level, I would treat them as corrections.
• Support: 121.35 (S1), 120.00 (S2), 119.60 (S3)
• Resistance: 121.00 (R1), 121.45 (R2), 122.20 (R3)
Gold stays above the upper boundary of the channel
• Gold remained locked in a consolidation mode on Wednesday, staying between the 1080 (R1) resistance zone and the 1070 (S1) support area. A break in either direction is likely to determine the forthcoming near-term bias. Although on Monday the precious metal broke above the downside channel it had been trading since the 4th of December, I believe that the short-term picture favors a minor pullback. A break below the 1070 (S1), could carry larger bearish implications and challenge our next support of 1060 (S2). Looking at our short-term momentum signs, the RSI found resistance just above its 50 level and points down, while the MACD, already below its trigger line, has topped and could fall below zero. These momentum signs support my view for a minor pullback before the bulls take control. As for the broader trend, a break above 1088 (R2) resistance line is needed to print a higher high on the daily chart and shift the medium-term outlook to the upside, in my view. As a result, I would prefer to wait for a break above the aforementioned level to trust further advances.
• Support: 1070 (S1), 1060 (S2), 1046 (S3)
• Resistance: 1080 (R1), 1088 (R2), 1096 (R3)
DAX futures break 10670
• DAX futures surged yesterday and moved above the resistance-turned-into-support barrier of 10670 (S1). The move was halted however just below our 10800 (R1) resistance level and around the 200-period moving average. I believe that a move above the 10800 (R1) barrier could trigger larger bullish extensions, something that is likely to aim our next resistance at the round figure of 11000 (R2). Our momentum studies however are mixed and support the case to remain on the sidelines, at least for now. The RSI found resistance just below its 70 level, while the MACD, poked its nose above zero but showed signs that it could top around that area and move lower. As for the broader trend, the price structure still points to a downtrend, but I prefer to see a close below 10115 to trust that the medium-term outlook is back to the downside.
• Support: 10670 (S1), 10500 (S2), 10300 (S3)
• Resistance: 10800 (R1), 11000 (R2), 11100 (R3)
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
