The markets consolidated once again in a rage-bound choppy session for equities. There is a lack of direction and conviction in equity markets at present which is keeping the indices range bound. Buyers are holding on and buying dips while sellers are engaging with resistance. This may lead to a breakout in either direction in time but the exact trigger for such a move remains elusive. It may well come later today with the ECB press conference or more importantly in a US context the release of US CPI data. The ECB is expected to leave rates unchanged at -0.5% and keep the Pandemic Emergency Purchase Program at €85M in the third quarter. The ECB are expected to relay that the balance of risks are still skewed to the downside and it feels it has to maintain its support of the economy as vaccinations are still being rolled out and virus cases are still high. The other key risk event is the US CPI data release which is expected to print at 0.4%, a decline from the 0.8% last month. There is still strong anecdotal evidence that consumer goods and services in the US are increasing in price, with fuel and food being key drivers. The reading is expected to have an impact across all markets particularly the USD FX pairs and Bonds, which will impact equities and commodities. The danger is that rising inflation created by the use of unprecedented government economic stimulus is creating inflation at a time when large parts of the economy cannot sustain that natural FED response to this, namely rising interest rates. Coming out of a time where rates have been low for such a long period of time, higher rates will place pressure across the economy, especially on the debt and credit markets. While the FED has confirmed that CPI is not its preferred inflation gauge and that inflation is transitory, a further rise in CPI may well disrupt market confidence, where CPI is followed closely. The market may run away with the CPI data release today as the FED is in a media blackout period ahead of next Wednesday’s meeting and will not be able to sooth markets fears. The Japanese 225 closed up 0.34% today. The Hang Seng traded down -0.07% while the Shanghai Composite traded higher by 0.51%. Gold is trading at 1885.00 while USDJPY is trading at 109.460.
Today the ECB will release its rate decision and monetary policy statement, followed by a press conference in the early afternoon. The US CPI data is expected to fall to 0.4% from 0.8%, while Core CPI is expected to fall to 0.5% from 0.9%. US Unemployment Claims are expected to come in at 370K from 385K last week.
The USDJPY moved higher after the trend line was broken around the 104.350 area in January. Price pushed up to reached a high around 111.000 in March. Price fall back from the high and is now trading at the 109.450 area. The 109.000 level is expected to be used to consolidate price action in the short term followed by supports at 108.570, 108.200 and 108.000. The 107.500 area may be supportive and is followed by the 107.060/107.000 area. The 106.225 area may act as support in the event of a deeper pullback, followed by 106.000 and 105.700. Price has now bounced up above the November high and is attempting to turn this level to support at 105.680. The 105.000/104.925 area may also be supportive followed by 104.350. The trend line is today just below the 104.000 round number and the 103.330 area may act as potential supports. A retest on the trend line at 103.600 cannot be ruled out. The 102.900/102.800 area may also provide some support on a break of 103.000 followed by the 102.500. This is in turn followed by potential support at 102.275. The 102.000 level may be used in price break these potential support with a view to testing down into 101.000.
The 109.800 area is being tested as resistance. The 110.000 round number may provide further resistance followed by 110.420. A rally above the 111.000 level may seek to take price up to engage the 111.500 area of resistance which is followed by the 111.800 area. This area is followed by 112.000, with a breakout to the high at 112.227 potentially on the cards if this level is breeched. The lower high at 111.700 may also act as resistance. A break above this area may open the path to the pair potentially attempting to gain a foothold above this resistance and establish a base to engage the 113.000 area. A break above this level may seek to test the 114.000 level followed by the potential resistance at 115.000.
The EURGBP pair has moved back up through the broken falling trend line and is continuing its consolidating phase. The pair broke down from the March high at the 0.9500 level and is currently trading around 0.8624 after finding support at 0.8472 in April. The pair tested 0.9292 in December and has created lower highs at 0.9230 and 0.9217. Resistance may be seen at the 0.8670 level and the 0.8700 area. Below the current level, the 0.8600 area is being tested at present as the price action forms a flag across it and 0.8590 may be used as support, followed by 0.8583, 0.8500 and the 0.8450 area. The 0.8562 level was used as support last month. The low at 0.8276, from December 2019, and then the 0.8250 level may also be used as potential support for the pair.
Resistance may form above 0.8600 potentially setting up a short squeeze scenario if the 0.8670 and 0.8700 levels are broken and confirmed. Previous resistance may be encountered at 0.8740 followed by 0.8800. Further resistance be used at 0.8866 or 0.8900/0.8930 followed by the 0.9000 round number level in the event of a retracement higher. Above this 0.9050/0.9065 may provide resistance followed by 0.9084 area. The area above 0.9100 may continue to offer resistance, with a focus on 0.9150 followed by 0.9177. The 0.9200 round number may provide further resistance followed by the 0.9235 area. A move back higher from there targets the 0.9250 area, followed by the higher high at 0.9275. Above this area, the 0.9290/0.9300 area comes into play followed by the August high around 0.9323. The current high at 0.9500 remains the level to beat for buyers. A break higher may seek to test the 0.9550/0.9560. Beyond this, the potential resistance area at 0.9620 might be used ahead of the 0.9700 level. The next area of interest may be found at 0.9720, followed by 0.9750 which may also be used as resistance to any potential move higher, while above the area the 0.9800 area may further resist attempts to push price up to the 0.9900 level. The round number level may also come into play at 1.0000.