Master Select 5

The central banks of the United States and Japan are sharply divided, inflation data is "worse", and USD/JPY is above the 150 mark

In the Asian session on Friday (January 19), USD/JPY fluctuated higher and is currently up 0.13% and trading around 148.30, while Japanese inflation slowed to 2.6%, leading to increased uncertainty about the Bank of Japan's shift from ultra-loose to tightening. Currency investors are gradually tilting towards the US dollar as bets on an early rate cut by the Federal Reserve in March fall, and the Fed spokesperson's speech is expected to be a key catalyst in the future.

On Friday, Japan reported that the national consumer price index (CPI) fell to 2.6% in December from 2.8%, in line with consensus market expectations. Core inflation fell to 2.3% from 2.5%. Economists forecast core inflation at 2.3%. Recent inflation, wage growth and household consumption data have reduced bets on the BoJ's pivot, and weak inflation data could further affect the BoJ's plans to exit negative interest rates.

However, March's "spring fight" wage growth talks could spur the BOJ to pivot to tightening in the second quarter. Therefore, investors must pay attention to the reaction of the BOJ board members to the inflation data, and comments on the timing of the shift from negative interest rates also need to be considered.

Later on Friday, the US consumer confidence index will attract investors' interest. The upward trend in consumer confidence may signal a recovery in consumer spending. An improvement in consumer spending trends could spur demand-driven inflation. Rising inflationary pressures could force the Federal Reserve to postpone interest rate cuts to curb consumer spending and curb demand-driven inflation.

The long-term higher interest rate path affects borrowing costs and reduces disposable income, and a downward trend in disposable income could impact consumer spending.

Economists forecast that the Michigan Consumer Sentiment Index will rise to 70.0 from 69.7 in January, but investors must consider sub-factors, including inflation expectations, and other statistics include existing home sales data for December.

However, these numbers are likely to be second only to the Michigan report.

In addition to the numbers, comments from Federal Open Market Committee (FOMC) members also need to be considered. FOMC members Michael Barr and Mary Daly are scheduled to speak on Friday.

In the short-term outlook, the near-term trend for USD/JPY depends on forward guidance from the Bank of Japan, Fed rhetoric and US consumer confidence. A pick-up in consumer confidence and easing bets on a March rate cut by the Federal Reserve could tip the policy divergence in favor of the dollar.

USD/JPY technical analysis

FXEmpire analyst Bob Mason said that on the daily chart, USD/JPY is holding above the 50-day and 200-day moving averages, confirming a bullish price signal.

A break above the 148.405 resistance level for USD/JPY will leave the bulls running at the 150.201 resistance level.

However, a break below the 147.500 mark will support a move towards the 146.649 support, and a break below the 146.649 support will allow the 50-day MA to come into play.

The 14-day RSI is at 65.57, suggesting that USD/JPY will break above the 148.405 resistance before entering overbought territory.

On the 4-hour chart, USD/JPY is trading above the 50-day and 200-day moving averages, reaffirming a bullish price signal.

USD/JPY broke above the 148.405 resistance and will support its move towards the 150.201 resistance.

However, a break below the 147.500 mark will allow the bears to rush towards the 146.649 support.

The 14-period 4-hour RSI is at 70.24, suggesting that USD/JPY is in overbought territory and selling pressure at the 148.405 resistance level is likely to intensify.

Six major currency pairs, the US dollar index and gold resistance/support levels during the Asian session on January 17

This article provides support and resistance levels for the U.S. dollar index, euro, pound, Japanese yen, Swiss franc, Australian dollar, Canadian dollar and gold.

EUR/GBP Price Analysis: Bears pause, two days losses meet strong support at 0.8600
EUR/GBP regains some ground and stands at 0.8605 despite previous losses.
Daily chart outlook still suggest a bearish outlook..
In the longer term, the pair remains under major SMAs, painting a bearish picture while the four-hour-chart bears seem to ease off.
On Tuesday's session, the EUR/GBP was observed at 0.8605, experiencing slight gains of 0.15%. Following two days of declines and encountering robust support at the 0.8600 level, bears took a break. Despite this, the daily chart still presents a neutral to bearish outlook, and this bearish tilt remains apparent in the four-hour chart as well.

The indicators on the daily chart reflect a prevailing selling momentum. The Relative Strength Index (RSI) displays a positive incline yet remains within the negative territory, implying that while the selling pressure is somewhat easing, there is no pronounced shift in favor of buyers just yet. Concurrently, the Moving Average Convergence Divergence (MACD) with its rising red bars further highlights the current bear dominance. Moreover, the pair's position beneath the key levels of 20, 100, and 200-day Simple Moving Averages (SMAs) reinforces the widespread bearish control.

Zooming into the four-hour chart, the bearish sentiment is echoed. The tilt remains downhill as the negative slope of the four-hour RSI proclaims that sellers dominate the short-term momentum as well. However, the rising green bars in the four-hour MACD indicates a growing bullish undercurrent and a possible bearish exhaustion. It may imply that bears are taking a breather, and a temporary reversal might be on the cards if buyers manage to build an effective momentum. However, the overall outlook remains dominated by the sellers in the short run.

EUR/GBP daily chart

Another dollar bull "capitulates"! Morgan Stanley abandons bullish bets on the dollar

Financial News Agency, January 5 (Editor Bian Chun) As one of the few U.S. dollar bulls in the market, Morgan Stanley lowered its outlook for the U.S. dollar on Thursday, citing falling U.S. Treasury yields after the Federal Reserve turned dovish.

The bank adjusted its outlook for the U.S. dollar to neutral from bullish , but noted that seasonal factors and short positions could still push the dollar higher.

Morgan Stanley has been betting on a stronger dollar since at least mid-November, with the bank forecasting that the U.S. Dollar Spot Index (DXY) would rise about 8% from current levels in the second quarter.

In December last year, hedge funds and major banks, including Goldman Sachs, began to turn bearish on the U.S. dollar after Federal Reserve Chairman Powell hinted that he would turn to interest rate cuts this year.

The U.S. dollar index subsequently fell to a five-month low, but rebounded in the first four days of January this year. The index fell 0.2% on Thursday.

After the Federal Reserve signaled a policy shift at its last meeting, market expectations for an interest rate cut have increased significantly. But in recent days, markets have scaled back bets on the Fed to cut interest rates.

The minutes of the Federal Reserve policy meeting released on Wednesday were viewed by market participants as mildly hawkish. Better-than-expected U.S. labor market data (ADP data) released on Thursday dampened expectations that the Federal Reserve will cut interest rates multiple times this year. On Friday, the United States will release the latest non-farm payrolls report, which may provide more clues about the Fed's policy outlook.

The London Stock Exchange Interest Rate Probability Application shows that after the release of ADP data on Thursday, U.S. interest rate futures lowered their expectations for the number of interest rate cuts in 2024 to four, with each rate cut of 25 basis points, from about six on Wednesday night.

The dollar is long and one less

"Our confidence in the strength of the U.S. dollar has weakened significantly," Morgan Stanley strategists including David Adams wrote in a report released on January 4.
Morgan Stanley lowered its outlook for the U.S. dollar, which means there is one less dollar bull in the market.
In December, a handful of institutions, including Fidelity International, JPMorgan Chase and HSBC, went against the consensus view and warned that the U.S. dollar would unexpectedly strengthen in 2024 as the U.S. economy performed well.

These dollar bulls expect the rest of the world's economies to have a harder time dealing with high interest rates and a looming recession than the United States. While the Fed has signaled it plans to cut interest rates by 75 basis points in 2024, it expects other major economies from Europe to emerging markets to take similar or even faster cuts, causing spreads to widen.

Among analysts surveyed by foreign media, most people believe that the dollar will weaken.

Morgan Stanley also withdrew its short EUR/USD trading recommendation and instead advised investors to short EUR/JPY. The bank forecasts that the yen will appreciate as U.S. interest rates fall, while the euro will weaken as the euro zone economy continues to weaken.