The release of the December US inflation rates to shake the markets

With the US Employment data for December allready out the next big test for the USD on a macroeconomic level is to be todays’ release of the US CPI rates for the same month. The US employment report for December sent some mixed signals on Friday with the NFP figure coming in lower than expected, yet the main surprise may have been the drop of the unemployment rate from 4.6% to 4.4%, implying some resilience of the US employment market. Today the release of the US CPI rates for December is to provide another piece of the puzzle. Should the release show a maintaining of inflationary pressures in the US economy, either by failing to slow down or even accelerate we may see the USD gaining some ground as the market’s dovish expectations for the Fed’s intentions may ease.

Political instability in Japan weighs on JPY

Japan’s PM Takaichi has expressed her intention to another ruling party officer to dissolve the Japanese Parliament on January 23rd, practically calling for a snap election. The news weighed on the JPY as political uncertainty in the land of the rising sun emerges, but also the possibility of MS Takaichi gaining a wider majority in the Japanese Parliament may enhance her position and increase the political pressure on BoJ to lower rates or avoid hiking them. It’s characteristic that JPY was the only one in a basket of major currencies which weakened against the USD.

USD/JPY rose in today’s Asian session placing some distance between its price action and the 157.80 (S1) support line. We maintain a bullish outlook for the pair given that also that RSI indicator has reached the reading of 70. Yet the pair’s price action has also hit the upper Bollinger band which may slow down the bulls or even cause a correction lower. Should the bulls maintain control as expected, we may see the pair start aiming for the distant 161.90 (R1) resistance level. On the flip side, should the bears take over, we may see USD/JPY breaking the 157.80 (S1) support line and continue to break also the 154.30 (S2) support base.

The attack of US President Trump on Fed Chairman Powell

The US Department of Justice (DoJ) over the weekend subpoenaed Fed Chairman Powell over comments and DoJ also has threatened with a criminal indictment, escalating the situation further. The action by US President Trump is considered as an intensification of his efforts to increase his influence over the Fed. It is well known that the US President wishes the bank’s rates to drop severely. The risks are high for the market, as the independence of the Fed is at stake, which provides additional support for gold’s price.

On a technical level, we note that gold’s price as noted in yesterday’s report, broke the 4550 (S1) resistance line, now turned to support and has now reached new All Time High levels. We maintain a bullish outlook for gold’s price given that the upward trendline guiding it remains intact, while the RSI indicator has reached the reading of 70. Yet the price action has hit on the upper Bollinger band which may be reason for a correction lower. Should the bulls maintain control as expected, we set as the next possible target for the bulls the 4800 (R1) resistance line. Should the bears take over we may see gold’s price breaking the 4550 (S1) support line, breaking also the prementioned upward trendline and continue even lower to break the 4380 (S2) level.

Other highlights for the day:

Today we get the Czech Republic’s CPI rates for December, we highlight the release of the US CPI rates for December, the US new Home sales for October, the weekly US API crude oil inventories and New Zealand’s building consents for November and BoE Governor Andrew Bailey, St. Louis Fed President Musalem and Richmond Fed President Barkin are scheduled to speak. In tomorrow’s Asian session, we get Japan’s Reuters indicators for January and China’s trade data for December.

USD/JPY Daily Chart

• Support: 157.80 (S1), 154.30 (S2), 151.50 (S3)
• Resistance: 161.90 (R1), 165.00 (R2), 168.00 (R3)

XAU/USD Daily Chart

• Support: 4550 (S1), 4380 (S2), 4245 (S3)
• Resistance: 4800 (R1), 5000 (R2), 5200 (R3) 

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