Technical Analyst, Saxo Bank
Summary: USDJPY bouncing from key support at 130.38
EURUSD breaking bearish out of rising channel
Dollar Index finding support at 103.20 and could bounce to 106
USDJPY is jumping around key support at 130.38 but has not closed below which is key. There is massive divergence on RSI since mid-December indicating the downtrend is exhausting and a rebound should be expected. A rebound that could take USDJPY to the 0.382 retracement of the downtrend since October peak at 138. The 200 daily SMA will provide resistance, however. And declining 55 and 100 daily SMA’s will provide overhead resistance
If on the other hand Bears manage to push USDJPY to close below 130.38 the downtrend is likely to be extended down to around 126.35.
EURUSD broke bearish out of its rising channel yesterday after a couple of weeks with divergence on RSI thus indicating an exhaustion of the uptrend.
A correction down to around 1.04-1.03 is in the cards where 55 and 200 daily SMA will provide some support. 1.0332 is the 0.786 Fibo retracement of the channel uptrend.
If EURUSD crawls back above to close the lower rising trendline in the channel we are likely to see the uptrend resume to test resistance at 1.0780
The Dollar Index is forming what appears to be a falling wedge like pattern. Bouncing from support at 103.20 a correction sems likely. A correction that could take the Dollar Index to the 0.618 retracement of the wedge like pattern move at around 106 but a spike up to 106 is not unlikely. Divergence on RSI supports the correction scenario.
However, if the Dollar Index drops lower to close below 103 a sell-off down to support at around 101 should be expected.
RSI divergence: When instrument price is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
2024: The wasted year
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.