Talking Points:
- USD/JPY Snaps Narrow Range, Outlook Mired by Mixed U.S. Data.
- AUD/USD Continues to Bounce Along Channel Support Ahead of Australia Employment Report.
USD/JPY faces a growing risk of giving back the advance from the 2017-low (107.32) as it snaps the narrow range from earlier this week and it initiates a fresh series of lower highs & lows.
Despite the unexpected uptick in the core U.S. Consumer Price Index (CPI), the ongoing batch of mixed data prints may continue to dampen the appeal of the greenback as Fed officials strike a more cautious tone ahead of its last interest rate decision on December 13.
Following the fresh remarks from St. Louis Fed President James Bullard, Chicago Fed President Charles Evans, a 2017 voting-member on the Federal Open Market Committee (FOMC), also struck a cautious tone and warned ‘something more persistent is holding down inflation’ as price growth continues to run below the 2% target. In turn, a growing number of Fed officials may forecast a more shallow path for the benchmark interest rate as the U.S. economy appears to be facing ‘facing below-target inflation expectations.’
Even though the FOMC is still expected to deliver another rate-hike in December, the dollar-yen exchange rate may continue to consolidate over the remainder of the year as the central bank runs the risk of concluding its hiking-cycle ahead of schedule.
USD/JPY Daily Chart
- USD/JPY stands at risk for further losses as it continues to come off of the topside hurdle around 113.80 (23.6% expansion) to 114.30 (23.6% retracement), with both price & the Relative Strength Index (RSI) highlighting a more definitive break of the bullish trends carried over from September.
- Need a close below the 112.30 (61.8% retracement) to 112.80 (38.2% expansion) region to open up the next downside target around 111.10 (61.8% expansion) to 111.30 (50% retracement), which sits just below the 200-Day SMA (111.76).
AUD/USD carves a bearish series after clearing the October-low (0.7625), but another 18.8K expansion in Australia Employment may temper the recent decline in the exchange rate as it instills an improved outlook for growth and inflation.
Keep in mind, the Reserve Bank of Australia (RBA) appears to be on course to carry the record-low cash rate into 2018 as the ‘growth in housing debt has been outpacing the slow growth in household income for some time,’ but a further improvement in employment may boost the appeal of the Australian dollar as ‘stronger conditions in the labour market should see some lift in wage growth over time.’ As a result, Governor Philip Lowe and Co. may gradually change their tune over the coming months as ‘various forward-looking indicators continue to point to solid growth in employment over the period ahead.’
However, a below-forecast print for Australia Employment may weigh on AUD/USD as it drags on interest-rate expectations, with the aussie-dollar exchange rate at risk of exhibiting a more bearish behavior ahead of the last-2017 RBA meeting on December 5 as both price and the Relative Strength Index (RSI) extend the downward trends carried over from September.
AUD/USD Daily Chart
- Downside targets remain on the radar for AUD/USD as it snaps the monthly opening range and carves a series of lower highs & lows; need a close below 0.7590 (100% expansion) to open up the next downside region of interest around 0.7460 (23.6% retracement) to 0.7530 (38.2% expansion).
- Keeping a close eye on the Relative Strength Index (RSI) as it holds above 30 despite the fresh monthly lows in AUD/USD; may see the bearish momentum gather pace if the oscillator pushes into oversold territory.
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--- Written by David Song, Currency Analyst
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