Daily Insights Report 24/01/17

• 31 Mar 2017

24 Jan 2017

Japan’s Nikkei Manufacturing PMI rose in January from December. The increase was a modest 0.7%, but still enough to provide some relief to the Japanese economy. It is the highest reading since March of 2014 because of growth in new orders and output as well. Looking at the trend, manufacturing PMI has been rising in recent months.

The potential incoming US Treasury Secretary commented on the recent strength of the Dollar. He mentioned that the excessively strong Dollar could have a negative short-term effect on the economy. This comes after the President mentioned that the currency is too strong as well in an interview with the Wall Street Journal. If the US Dollar continues to rise, it becomes more expensive for other countries to trade with the US. This goes against what is suggested in his policies, which would increase infrastructure spending and the interest rate would go up as well. Together, these would increase the value of the Dollar against other currencies.

Once the president of America changed, there was a slight sense of panic in Japan because of what might happen to the value of the Yen. On Monday, The Yen strengthened from 115.22 to 113.50. While the currency has been typically seen as a safe haven currency, it is unclear for how long it can hold this reputation given the changes seen in the world economy. Some believe that the Yen staying in the 113 zone might be a reason to buy Dollars as the Yen may further weaken over the coming months, into the 115-125 per Dollar range. While the actual policies of the new President may not be clear, fiscal expansion remains as the main theme, which would increase the value of the US Dollar. Historically, the Yen has been the most sensitive currency of the majors to US interest rates. The yearly chart shows the performance of the JPY against the USD.

Commodities

– Gold increased its value by 0.6% to reach $1,220.26 an ounce

– West Texas Intermediate (WTI) crude oil increased to settle at $52.89. The rise was a modest 0.3%. This comes after data showed that US drillers increased their production schedule by increasing the rigs in use. This is to challenge the plan of OPEC to reduce global supply of oil.

United States Dollar (USD)

Existing Home Sales

Before the New Home Sales data that will come later in the week, the Existing Home Sales shows data of when a mortgage is closed. New Home Sales data will be released on Thursday, which gives a better understanding of the US housing market, combined with Existing Home Sales. In America, it takes about 30-60 days after the contract is closed. December existing home sales are expected to decline after a nine year high that was shown in November. Some homebuyers may be interested in moving sooner rather than later, as the mortgage rate may increase. The expectation for this data is currently 5.50 million homes (the number is annualized)

Technical Analysis

GBPUSD

With the stochastic indicators and the moving averages leveling around the value shown in the Fibonacci retracements, there might be a case where the support has now become resistance. With the events of last week that rallied to close higher. There is expected to be a further price growth in this week of trading. As a result of this, the pair may be headed for a trading level of 1.280 after the event of the double bottom (first time in October, second time in December). Even though the stochastic chart shows that the pair is overbought, it does not imply a bearish trend, though it is a possibility.