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Forex Trading StrategiesStrong JPY remains in focus USD/JPY may be head for test of 116.00 or lower. USD/CAD may look higher.
US CPI and Empire Manufacturing on tap for today.
MAJOR HEADLINES – PREVIOUS SESSION
• US weekly energy storage inventories show mixed message. DOE report slightly bearish, while API report shows large draw in Crude oil and especially Distillates. Energy prices eased lower on the day.
• China growth in Fixed Assets Investment in Nov. up 27.8% vs. 27.5% expected
• Japan Leading Economic Index finalized at 81.8% vs. 81.4% expected and Coincident Index steady at 90.0%
JPY remained strong overnight in the crosses, though USD/JPY bounced from its extreme lows below 117.00. CHF remains strong and the USD eased stronger overnight vs. EUR.
THEMES TO WATCH – UPCOMING SESSION
A bit of a surprise to see the USD faring so well after the catastrophic US Trade Balance release yesterday and a continuation of US yields south while the European curve remains more buoyant. This is most likely due to the tremendous focus on JPY, which has obviously taken out key levels across the board. EUR/JPY is perhaps the most interesting because it is the largest cross, and we're now trading a big figure below the 141.60 reversal level. This kind of reversal could suggest a downdraft all the way to 137.50 that may take very little time to accomplish. This would require an accompanying downfall in USD/JPY as well, obviously if we are to keep EUR/USD above 1.1900, which we must if we're to keep the rally there intact.
Elsewhere, USD/CAD may have seen a key day yesterday. As we mentioned recently, 2005 has been the year of the commodity currency, and CAD has been the standard bearer on this theme. With yesterday's impressive hammer formation as the new lows below 1.1500, we wonder if this level will become a significant barrier to further downside and if a rally back toward 1.1700 is in order. A further sell-off in energy would aid the cause higher there.
Up today, we have the SNB's rate decision at 0830 GMT, with expectations of a 25 bp hike to 1.00% likely partially priced in with yesterday's huge move stronger in CHF, but there could be more upside further out for the franc.
In the North American session, we have a look at US CPI, which would seem only able to surprise to the upside with expectations for a -0.4% reading and +0.2% ex Food and Energy. Have to begin to wonder about the next rate meeting and whether the Fed will hike if we get a 0.0% ex F&E number. On the other hand, is the market prepared for the opposite - a high CPI number? Seems the "surprise side" would be a high number, though we have no specific expectations.
Note: the support/resistance levels used in the matrix’s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
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