US govt shutdown and BoJ, ECB to set tone | Market Outlook, Jan 22, 2018

Market Outlook

US govt shutdown and BoJ, ECB to set tone

The week ended with a shutdown hitting US government as the senators failed to agree on the budget for the wall. Trump in spite of having a majority couldn’t get enough votes to prevent the shutdown highlighting the troubles he is facing. Trump’s adamant stand on immigration being the crux of the divisions with GOP. Talks are underway even on Sunday to extend funding until Feb 6th.

The week started with Bank of Japan’s Kuroda kicking off things with an optimistic assessment of the economy letting yen appreciate against Dollar with USDJPY touching a low of 110.13 for the week. Kuroda came back again on Wednesday to say that BoJ would continue with policy aimed at 2.0% inflation. USDJPY moved higher to touch 111.48 before ending the week at 110.50.

EURUSD was well supported at the beginning of the week after a hawkish ECB helped it hit a high of 1.2332 but was soon under pressure as Merkel was facing fresh troubles after SDP withdrew from coalition talks. The biggest supporter and proponent of EU, Merkel’s presence at the helm of EU’s biggest economy is pivot to the existence of EU aka EURUSD.

GBPUSD was helped through most of the week by expectations of a soft Brexit before Friday’s retail sales disappointed. GBPUSD closed the week at 1.3853 after it had made a fresh high of 1.3945.

Gold’s run up finally snapped last week after making a high of $1343/oz. slightly short of the resistance at $/oz.1350.

USDCAD ended the week with just 20 pips gain, but only after giving wild swings that saw it testing highs of 1.2540 and lows of 1.2360. Bank of Canada on Wednesday raised rates but also cautioned on NAFTA.

Coming week has two central bank interest rate decisions, from BoJ and ECB. No rate changes are expected from either but the market would closely watch the wording used in the monetary statement as in to guess the bank’s respective path ahead.

On charts USDJPY has strong support at 110.00 handle, but the US shut down if continues could see that level being tested again.

EURUSD is on strong footing and should continue to be so in the coming week barring any more bad press coming out from Germany. EURUSD continues to be inside the uptrend channel which is in place since December. Support comes in at 1.2150 and resistance at 1.2300. Thursday’s ECB monetary meeting the press conference that follows would be the important event to watch for.

GBPUSD has two importance economic news, Wednesday’s labor data and Friday’s GDP figures. On charts GBPUSD looks stretched and could see a correction that might even touch 1.3600.

Gold should be supported next week on the back of US government shutdown. On charts Gold has support at $1326/oz. and would attempt another move at $1350/o as long as $1326/oz. is held.

CAD has strong fundamental data to vouch for barring the NAFTA threat. The week’s world economic forum at Davos should throw out more hints about the future of NAFTA. USDCAD has support at 1.2400 and it would be tested this week again. USDCAD traders need to watch out for this Friday’s inflation data too.

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