Sterling Strengthens on PPI
Cable strengthens further today after accelerating PPI output index and strong revision to prior month’s PPI input index.
Output price climbed 0.2% mom and 2.2% yoy in December. This is raising the odds that tomorrow’s consumer inflation report will beat expectation. PPI input increased 0.1% mom, 1.9% in Dec comparing to expectation of 0.2% and 1.4%. But Nov’s PPI input index growth was revised strongly upward from 0.1% mom and 2.8% yoy to 0.6% and 3.3% respectively.
Elsewhere, dollar remains soft against Euro and should continue to trade in tight range with market holiday in US today. Yen weakens mildly ahead of the upcoming Asian session’s inflation report from Japan. December Domestic Capital Goods Price Index (CGPI) is expected to stay flat mom, with 2.5% yoy growth, comparing to prior month’s -0.1% and 2.7%. Any surprise from this piece of Japanese data may stir some ripples in the market but traders will remain cautious ahead of Thursday’s BoJ announcement.
Daily Pivots: (S1) 120.10; (P) 120.41; (R1) 120.65;
USD/JPY continues to trade sideway between 120.07 and 120.71 today. With 4 hours MACD dragged below signal line and RSI pulled back from overbought region suggest that a short term top should be in place. Further consolidation is in favor to follow with risk of pull back towards 4 hours 55 EMA (now at 119.51). But downside should be contained above 119.02 cluster support (61.8% retracement of 117.96 to 120.71 at 119.01) and bring another rally.
On the upside, above 120.71 again will indicate rise from 117.96 has resumed for 121.38 resistance (05 high). Meanwhile, Break of 119.02 cluster support will indicate the rise from 114.41 has possibly completed. Focus will then be on 117.96 support and break will encourage deeper correction.
In the bigger picture, sustained break of 119.86 resistance confirmed that whole rally from 108.99 has resumed for 121.38 resistance As discussed before, fall from 121.38 to 108.99, with its three wave nature, should either represent the correction to whole year long up trend from 101.65 to 121.38, or part of such correction. That is, the medium term rally from 108.99 is either resumption of the whole up trend from 101.65 or a rising leg of consolidation pattern that started at 121.38. Favor is still in the former case as long as USD/JPY stays above 114.41 support or before sign of reversal.
Also, note that the current rally has pushed USD/JPY above multi-year falling trend line (147.68 to 135.20, now at 117.65) again. Sustained break of 121.38 resistance will confirm that whole up trend from 101.65 has resumed.
Shing-Ip Tsui is the founder and CEO of
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