EUR/USD: Attention shifts to Catalan regional election
Macroeconomic overview:
- Yesterday, U.S. Congress approved the US tax bill. Now, President Trump will have to sign it into law.
- Existing home sales surged 5.6% to a seasonally adjusted annual rate of 5.81 million units last month amid continued recovery in areas in the South ravaged by Hurricanes Harvey and Irma, and solid gains in other parts of the country. That was the highest level since December 2006 and marked the third straight monthly rise. The market had forecast home sales rising only 0.9% to a 5.52 million-unit rate in November. While the housing market is expected to continue growing next year, there are concerns that a Republican overhaul of the U.S. tax code could hurt sales at the high end of the market. The biggest overhaul of the tax system in more than 30 years will cap the deduction for mortgage interest at USD 750k in home loan value for residences bought from January 1, 2018, through December 31, 2025. The cap would revert to USD 1 million in loan value after December 31, 2025.
- Today, Catalans will go to the polls to elect their new regional parliament. Although twelve parties are running, the vote is essentially an electoral contest between two factions: the unionists and the separatists. According to the most recent polls, neither faction is likely to command an absolute majority in the regional parliament, but momentum seems to be on the side of the unionists. Thus, the most likely scenario will be a hung parliament, with Catalonia en Comu being the kingmaker and the unionists being the relative majority. Results are expected to be out late in the evening.
Technical analysis and trading signals:
- The EUR/USD broke above and closed above the 1.1862 high on December 14, which opens the way to 1.1960 November peak. The next resistance level is 1.1904, 76.4% retrace of the 1.1960 to 1.1718 fall.
- We keep our long position unchanged.
USD/JPY: BOJ keeps policy on hold, Kuroda dismisses talk of early withdrawal of stimulus
Macroeconomic overview:
- The Bank of Japan kept monetary policy steady and its governor said economic improvements alone would not trigger a withdrawal of stimulus, reassuring markets it will lag well behind its overseas peers in ending crisis-mode easing.
- Governor Haruhiko Kuroda stressed the need to "patiently" maintain ultra-loose policy, with inflation still distant from the BOJ's 2% target despite a strengthening economy.
- Kuroda also rebuffed the criticism that prolonged easing could destabilise Japan's banking system, saying he saw no problem emerging in the financial sector, with lending on the rise.
- "Our most important goal is to achieve our 2% inflation target at the earliest date possible," Kuroda told a news conference. "We won't raise interest rates just because the economy is improving."
- As widely expected, the BOJ kept its short-term interest rate target at minus 0.1% and the 10-year bond yield target around zero percent - wrapping up a year in which the central bank made no change to policy.
- The decision was made in an 8-1 vote. Board newcomer Goushi Kataoka dissented for the third straight meeting, arguing that the BOJ should buy long maturity bonds so that yields for durations of 10 years and longer fall further.
- In a sign of its conviction in the strength of Japan's recovery, the BOJ revised up its assessment of capital expenditure and maintained its rosy view that the economy was expanding moderately.
- Japan's economy grew an annualised 2.5% in July-September to mark a seventh straight quarter of growth. But core consumer inflation remains stuck at 0.8% and firms expect no major pick-up in price growth in coming years.
- Some BOJ policymakers have recently expressed concerns over the perceived demerits of monetary easing, including the effects of very low interest rates on bank margins, suggesting the central bank may have to ponder raising its yield targets or slow purchases of risky assets next year.
- But Kuroda said he saw no need now to modify the BOJ's policy framework, dismissing the view that the central bank should dial back stimulus on concerns over its rising cost and diminishing returns.
- "We made clear in our comprehensive assessment last September that we will guide the yield curve to the most appropriate shape looking comprehensively at various factors, including financial conditions. We haven't made any changes to that idea since then," he said.
- Kuroda added that the BOJ would not slow its buying of exchange-traded funds (ETF) simply because stock prices were rising, saying such a step would only be taken when inflation approaches 2%.
Technical analysis and trading signals:
- The USD/JPY is trading above the cloud top, at 113.40. A daily close above that level will strengthen the hand of bulls. If the market breaks the 113.74 high on December 12 and 113.81, 76.4% fibo of 114.72-110.85 fall, a test of 114.72 is likely. On the other hand, a failure to close above the cloud will weigh.
- Our short remains under pressure, but the pair is still below our stop-loss level (113.75).
TRADING STRATEGIES SUMMARY:
FOREX - MAJOR PAIRS: 
FOREX - MAJOR CROSSES: 
PRECIOUS METALS: 
How to read these tables?
1. Support/Resistance - three closest important support/resistance levels
2. Position/Trading Idea:
BUY/SELL - It means we are looking to open LONG/SHORT position at the Entry Price. If the order is filled we will set the suggested Target and Stop-loss level.
LONG/SHORT - It means we have already taken this position at the Entry Price and expect the rate to go up/down to the Target level.
3. Stop-Loss/Profit Locked In - Sometimes we move the stop-loss level above (in case of LONG) or below (in case of SHORT) the Entry price. This means that we have locked in profit on this position.
4. Risk Factor - green "*" means high level of confidence (low level of uncertainty), grey "**" means medium level of confidence, red "***" means low level of confidence (high level of uncertainty)
5. Position Size (forex)- position size suggested for a USD 10,000 trading account in mini lots. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size). You should always round the result down. For example, if the result was 2.671, your position size should be 2 mini lots. This would be a great tool for your risk management!
Position size (precious metals) - position size suggested for a USD 10,000 trading account in units. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size).
6. Profit/Loss on recently closed position (forex) - is the amount of pips we have earned/lost on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.
Profit/Loss on recently closed position (precious metals) - is profit/loss we have earned/lost per unit on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.