Session close: Settled at 1.1824, up 82.5 ticks
Fundamentals: This was a strong session for the euro after U.S CPI missed expectations and the Fed hiked rates. Yes, the Fed hiking rates were bullish the euro and we have been pounding the table on this concept for weeks now. Fed Chair Janet Yellen was upbeat on the economic recovery which was expected, citing job growth and rising wages. However, inflation continues to lag expectations and two Fed members dissented; Kashkari did for the third time this year while Evans did for the first time. The Dot Plot shows a median expectation of three hikes next year with three members seeing more than that while 5 members see less than that with one even seeing a cut (likely Kashkari). The fact that distinction seems to be growing is a main reason why we are long-term bearish the Dollar; expectations will never be as hawkish as they were one year ago when the Fed dot plot surprised with three hikes for 2017. Now we are also bullish the euro because we believe that the market is underpricing the ECB’s hawkishness, similar to what we saw from the Fed a little more than one year ago. Now tomorrow’s meeting when a policy announcement is due at 6:45 am CT, no big surprises are expected. ECB President Mario Draghi’s press conference follows at 7:30 am CT. However, we believe the ECB will begin to appear more hawkish sooner than later. German Manufacturing data is at 2:30 am CT.
Technicals: For euro bulls, you could not have asked for a better session than this. Our major three-star support has held like a champ all week and now we achieved the closeout above first key resistance at 1.1818-1.1820. We remain Bullish and resistance does come in at the 100-day moving average at 1.1846 and aligns with the 50% retracement at 1.1848, however, we are watching for this level on a weekly close and less intraday. Today’s leg up should signal a test to 1.1878 at a minimum. Trendline resistance now comes in at 1.195.
Resistance –1.1846-1.1848*, 1.1878**, 1.1925**, 1.19975-1.2019***, 1.2154-1.2180****
Pivot - 1.1818-1.1820
Support – 1.1728-1.1730***, 1.1672**, 1.15785*, 1.1481-1.15***
Session close: Settled at .8890, up 84 ticks
Fundamentals: The Yen capitalized well off a weaker Dollar after the Fed hiked rates with two dissenters. U.S CPI this morning slowly got the ball rolling on support for the Yen but as we discussed in the euro section, the Fed will never be as hawkish as their expectations were one year ago and for that reason, the Dollar has a path of least resistance lower. Machinery data out of Japan last night was strong and tonight we have Industrial Production at 10:30 pm CT. Also, there are key reads out of China that include Industrial Production and one of our favorites, Fixed Asset Investment at 8:00 pm CT. If the reads out of China miss, we would imagine it helps to support the Yen as a safe haven trade.
Technicals: Today move solidifies the Bullish case for the Yen as it traded through resistance at .8845-.8853 that also included a trend line from recent swing highs. Furthermore, today’s close is right at the 21-day moving average which has also turned the 9-day sharply higher and sets it up for technical momentum on the cross. First key resistance now comes in at .8934-.8941 and if the Yen closes out above there we imagine that shorts will begin covering. The true breakout will occur above major three-star resistance.
Resistance - .8934-.8941**, .9018-.9045***
Pivot - .8886-.8890
Support -.8845-.8863**, .8790-.8801**, .8730***