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USDJPY bull flag has broken out as the euro capitulates lower

US Treasury secretary says high inflation may be around until mid-2022, the benchmark yields for the US are rising and EURUSD is crashing through the support levels that were previous resistance.


Market Wrap

It has been a quiet economic calendar today for Tier-1 scheduled news releases. Before the US retail sales and industrial production data, we heard from the ECB and European Union. Flash GDP QoQ came in as expected for the European Union but Flash employment changes came out more favorably. The EURUSD has plummeted -2.30% over the last 7 days and fallen through the 1.1400 level and is heading to 1.1300 next.

The ActivTrades sentiment indicator for the EURUSD shows the majority of traders are still holding long and I foresee these traders being squeezed out of their trades before the price actions bottoms out.

Retail sales in the US increased by 1.7% month-over-month in October, versus the consensus forecast of 1.4%. With consumers spending more on early holiday shopping and gasoline, it is the strongest gain since March.

The details show gasoline station sales rose 3.9% due to higher prices, while motor vehicles and parts sales increased 1.8%. This was below expectations due to the 6% growth in unit volume sales. Online retailers had a particularly strong month, with sales up 4%. Only clothing (-0.7%) and health/personal care (-0.6%) posted declines.

In October, US industrial production rose by 1.6% Month-on-Month (MoM), according to data released by the US Federal Reserve today. Those numbers were higher than expected with an MoM rise of 0.7% and fully reversed a drop of 1.3% seen in production levels in September.

The better-than-expected US data and the falling EURUSD have pushed the US dollar index to new yearly highs. We had highlighted $96 as the most logical target and we’re fast approaching that level. The DXY is up 6.13% in the last 6-months.

The forex heatmap shows that the pound has retained the strongest currency all day whereas the New Zealand dollar is still relatively the weakest today. The overall picture is more risk-off than risk-on, but the outlook is not clear-cut. This happens when there is little macro data to move the markets as they re-price on the news, but there is also a lot of Fed speakers, and the market will be hanging on their every word and waiting before any reaction. So today feels like a non-trading day, more of managing your trades day.

The USDJPY has clearly broken out of the bull flag pattern, the daily moving averages are all looking extremely bullish, so I am predicting we keep seeing higher prices. Things that would work against this trade include the price of Oil should it drop drastically and if the yields on the benchmark US treasuries were also to drop.

TLT is saying that yields are generally supported and that the bonds etc. are on their way down, whilst the inflation continues to remain high, and the Fed refuses to raise interest rates.


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