The dollar is slightly firmer after a choppy session which saw the release of consumer prices, industrial production, the Fed’s Beige Book, and commentary from ECB and Fed officials. The recent correction which was encouraged by shifting rhetoric from officials may have more room to run, but longer-term trends remain intact and have not shown signs of reversal yet. The JPY continued to firm today and EUR traded softer, however the pullback in yen-crosses and euro pairs was rather shallow. USD/JPY found technical support around the session lows which is where the base of a rising channel and 23.6% Fibonacci retracement converge (see chart below). The channel base is a pivotal level as a sustained break below would suggest the potential for a deeper correction.
The Fed’s Beige Book, released today was based on information provided until January 4 and indicated that “economic activity has expanded since the previous Beige Book report, with all twelve Districts characterizing the pace of growth as either modest or moderate”. All districts that reported home prices saw increases while trends in wages, prices, and employment were “relatively unchanged”. Overall the report was relatively tepid and did not see much of a reaction from the markets.
US consumer prices were mostly in line with expectations with headline readings as 0.0% m/m and 1.7% y/y in December. Core prices rose by 0.1% (prev. 0.1%) from the prior month and 1.9% (prev. 1.9%) from the prior year. The data shows that inflation remains subdued which allows easy monetary policy from the Fed to continue for now.
Industrial production showed an increase of 0.3% as expected and capacity utilization edged higher to 78.8% from 78.7% in December. Housing market data showed home builders’ confidence remaining at a 6-year high of 47 despite being slightly below the market consensus of 48.
The Fed’s Rosengren was on the wires this morning and note that he expects QE will be sufficient. The 2013 FOMC voter also said that he “certainly worries about the costs” of QE, but maintained his dovish tone by saying it’s premature to be talking about an exit. Minneapolis Fed President Kocherlakota spoke again today and spoke in favor of further easing from the Fed to spur hiring. He also reiterated that fiscal uncertainty is constraining investment as politicians continue to debate spending.
The ECB’s Asmussen spoke and said that the Bank expects the economy to improve this year. He also underscored the Bank’s commitment to price stability by saying that the ECB would act if any inflation signs emerge. The comments reinforced the view that the ECB is content to sit on the sidelines for now.
US equities finished the day mixed with the Dow Jones Industrial Average closing in the red (-0.17%) for the first time since last Tuesday while the S&P 500 rose marginally by about +0.02%. Commodities are mostly higher with gold and silver currently up about +0.04% and +0.31% respectively while oil is up after a report showed US weekly crude oil inventories declining by -951K barrels (cons. +2200K barrels).
Japan’s November tertiary industry index and department store sales for December are due out tonight. Australia will see the release of its December employment report, RBA foreign exchange transactions, and January consumer inflation expectations. Expectations are for the addition of 4.5K jobs in December and for the unemployment rate to jump to 5.4% from 5.2% as the participation rate holds steady at 65.1%.
Fig 1: USD/JPY remains in a bullish channel as seen on 4-hour candlestick chartsSource: eSignal, Forex.com