BOJ raises interest rates to 30-year high; sees potential for more hikes
Summary:
- The dollar broke below its lows of September 2017 and ended sharply lower against a basket of six majors. Even with the higher-than-expected U.S. core CPI for December, the dollar could not stay afloat. The growth in the inflation measure YoY came in at 1.8% versus the previous reading and the consensus forecasts of 1.7%. The dollar staged a short-lived rally in the aftermath of the inflation report.
- The gold soared and was approaching last year’s highs due to the renewed risk aversion amid geopolitical tensions as the dollar lost ground.
The dollar closed sharply lower against a basket of six majors after shaping a short-lived rally on Friday 12 January amid the steadily improved U.S. macro data. The dollar rallied while the gold dived and slipped as much as circa $9 immediately after a series of U.S. macro data release, including retail sales for December which rose 0.4% MoM, largely bang in line with expectations. In addition, U.S. December CPI YoY increased by 2.1% versus the previous reading of 2.2% while its core CPI climbed by 1.8%, versus the previous reading and the consensus forecasts of 1.7%. However, the dollar failed to sustain its rally on the back of those reports and even declined more swiftly to break below lows of September 2017, threatening the downside level of 90 handle in the short term. In contrast, the gold staged a V-shape rally towards last year’s highs on the day.
Technical
The dollar index (DXY) declined to the 200% Fibonacci extension level of the prior rally at circa 90.55, a new low since the beginning of September 2017. Its moving averages all went down, pointing to an exceptional bearish momentum in the short term on the 4 hour chart. Look for a potential corrective movement of the price action in the short term.
As to non-U.S. currencies, the euro rallied sharply to the 1.22 handle, well above its moving averages again. Look for a potential retracement on weakened upside momentum. The British pound created a new high since last year and hit the pivotal level at EMA144 in a swift mode. Whether or not the sterling could extend its rally will be important to observe. The Aussie dollar rallied further and printed another new high of the latest up swing.
Switching gears to precious metals now, the gold reversed up towards 1340 which is very close to last year’s highs after finding supports at its H4-period long term moving averages although the yellow metal dived in the short term following the U.S. inflation report release. Rising geopolitical tensions could push up the price to higher levels, extending its short-term upside momentum.
Disclaimer: The views and opinions expressed in this article are those of the authors and for the purpose of reference only, and shall not be relied upon by investors in making any trading decisions.