Fed’s minutes signal restrictive policy

The market tended to wobble yesterday with the release of the Fed’s last meeting minutes. The document showed the bank’s intentions to continue leaning on the hawkish side maintaining a restrictive policy, yet a wide majority seems to favor the bank to remain on hold. On the one hand, the Fed policymakers seem to avoid another rate hike, yet at the same time, the market’s expectations for a quicker rate cut in the coming year seem to be contradicted by the contents of the minutes. The message seems to have come at least partially across, as the markets now price in a possible rate cut in June instead of May, as was the case before. We also expect a number of Fed policymakers to reiterate the view that more indications may be necessary for them to be convinced that inflationary pressures in the US economy are subsiding and any such comments could provide some support for the USD and vice versa.

USD/JPY bounced on the 147.25 (S2) support line and continued higher to break the 148.25 (S1) resistance line, now turned to support. Given the breaking of the downward trendline guiding the pair, we abandon for the time being our bearish outlook and tend to lean towards a bullish outlook, given the intense upward movement. Should the bulls maintain control over the pair’s direction, we may see the pair breaking the 150.10 (R1) resistance line, with the next possible target for the bulls being set at the 151.70 (R2) resistance nest. Yet we have to note that the RSI indicator has been rising, but did not break above the reading of 50, while the price action of the pair broke the upper Bollinger band, which may slow down the bulls somewhat, if not lead to a correction lower. For a bearish outlook, we would require the pair to break the 148.25 (S1) support line but also the 148.25 (S2) support line that marks the latest trough of the pair.

US stock market bulls which tended to dominate major US equities indexes, seemed to hesitate, causing US equities to edge lower. It should be noted that NVIDIA (#NVDA) released its earnings reports yesterday beating market expectations both at an earnings level as well as at a revenue level, which tended to improve the outlook of the company. The company also issued a warning about next quarter’s sales, where it expects a steep drop in sales in China, which is considered a key revenue-generating area for NVIDIA. Yet, we note the high usage of the company’s graphic processor units (GPU) in the AI  sector, an area that is gaining importance and is growing at a rather fast pace. Overall, we expect that should the positive market sentiment be maintained we may see US stock market bulls regaining their confidence and driving equities higher. 

US 500 Cash edged lower as it is testing the 4540 (R1) resistance line. Despite the relative hesitation of the bulls, we tend to maintain our bullish outlook as long as the upward trendline remains intact and given that the RSI indicator is near the reading of 70. Should the bulls maintain control over the index, we may see it breaking the 4540 (R1) clearly and aim if not breach the 4610 (S2) support level. Should the bears find the chance and take over, we may see S&P 500 breaking the prementioned upward trendline, in a first signal that the upward motion has been interrupted and aim if not breach the 4465 (S1) support base. 

Other highlights for the day:

Today we note the release of UK’s CBI trends for industrial orders for November, from the US we get the Durable goods orders for October, the weekly initial jobless claims figure and the final US University of Michigan consumer sentiment for November, while from the Eurozone, we get the preliminary consumer sentiment indicator for the same month. Oil traders on the other hand may be more interested in the release of the weekly EIA crude oil inventories figure. On a fiscal level, we highlight UK finance minister Hunt’s Autumn Statement budget and at a monetary level, we note that ECB board member Elderson, BuBa President Nagel and BoC Governor Tiff Macklem are scheduled to speak.   

USD/JPY 4 Hour Chart

Support: 148.25 (S1), 147.25 (S2), 145.90 (S3)

Resistance: 150.10 (R1), 151.70 (R2), 153.20 (R3)

US 500 Cash Daily Chart

Support: 4465 (S1), 4400 (S2), 4310 (S3)

Resistance: 4540 (R1), 4610 (R2), 4720 (R3)

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