Market Focus

US equities advanced on Friday after a mixed session in the markets, with both earnings and inflation data remaining at the investor’s focus. The S&P 500, Dow, and Nasdaq all closed out Friday’s session in the green after a volatile trading week. Johnson & Johnson (JNJ) rose after the company said it was planning to split into two separate companies focused on consumer health products and pharmaceuticals respectively in a move echoing a similar breakup announcement by General Electric (GE) earlier this week.

Federal Reserve Bank of Minneapolis President Neel Kashkari has said the U.S. central bank shouldn’t overreact to elevated inflation even as it causes pain for Americans, because it is likely to prove temporary.

“The high prices that families are paying, those are real and people are experiencing that pain right now,” Kashkari said Sunday on CBS’ Face the Nation.

“We need to take it very seriously, but my view is we also need to not overreact to some of these temporary factors even though the pain is real,” he said.

The consumer price index increased 6.2% in the 12 months through October, the fastest annual pace since 1990, according to Labor Department data released last week. That has increased the pressure on the Fed from some economists to accelerate its withdrawal of support for the U.S. economy.

Former Treasury Secretary Lawrence Summers, speaking Sunday on CNN’s Fareed Zakaria GPS, said inflation’s momentum has built up to a point where “it’s going to take some significant policy adjustment or some unfortunate accident that slows the economy before inflation gets back to the 2% range.”

Fed policymakers announced on November 3rd that they had agreed to begin reducing monthly bond purchases designed to boost the economy by suppressing borrowing costs. They left their benchmark interest rate in a range between zero and 0.25%.

Main Pairs Movement

The US dollar lost its strength against most of its major rivals during Friday’s trading hours. The dollar index hovered around a tight range just above 95.00, with losers on Thursday taking back their lost lands, and the shared currency being the worst performer as the selling pressure is still strong amid a dovish ECB.

The Euro pair continues to drill to its yearly low, pinned at 1.1433 and ending the day 10 pips above it. Cable recovered all of its losses on Thursday after a 50-pip surge, closing the week at 1.3412. Loonie bounced off 1.2600 during the early London hours, but then failed to fuel the uptrend and fell to 1.2550 at the end of the day. Aussie, however, posted gains against the Greenback and is up 0.6% and trading at 0.7330. Ninja lost ground on Friday, closing the day at 113.85.

Gold’s demand remains robust amid a weeklong gaining streak. Spot is trading above $1,867 a troy ounce, a price last seen in June. Crude oil prices underwent a mild loss, with WTI ending the day red at $80.80 a barrel, and Brent down to $81.95.

 

Technical Analysis

GBPUSD (4- Hour Chart)

Following the previous two-day slide to a yearly low, GBP/USD rebounded moderately on Friday. The pair pushed higher to a daily top in the early European session, then started to see some selling and pared part of its intraday gains. However, the pair is still in positive territory amid US dollar weakness, rising 0.36% on a daily basis. The British Pound was the best performing G10 currency so far today, as the news reported that the UK wants to de-escalate Brexit-related tensions with the EU and they don’t want to trigger Article 16 of the Northern Ireland Protocol. However, the Bank of England’s dovish decision last week might continue to cap the upside for the cable.

From a technical viewpoint, the RSI indicator is at 40 as of writing, suggesting bearish movement ahead. But for the MACD indicator, a golden cross is forming on the histogram, which indicates an upward trend for the pair. Looking at the Bollinger Bands, the price has risen from the lower band and now it’s moving towards the moving average. Therefore the pair will experience some bullish momentum since prices tend to bounce within the bands’ envelope. In conclusion, we think that the market will be bullish as long as the 1.3355 support line holds.

Resistance: 1.3607, 1.3698, 1.3835

Support: 1.3355, 1.3188

 

USDJPY (4- Hour Chart)

USD/JPY declined on Friday, pulling back from a two-week high above the 114.25 level. The pair was supported by US dollar strength in the early Asian session, but failed to keep its bullish traction and dropped further during American trading hours. USD/JPY has slightly rebounded from a daily low, currently losing 0.14% on a daily basis. The risk-off sentiment around the equity markets and lower US Treasury bond yields both underpinned the safe-haven Japanese yen, but expectations about an early policy tightening by the Fed after upbeat US CPI reports should lend some support to the greenback and limit the losses for the USD/JPY pair.

As for technical analysis, the RSI is at 54 as of writing, suggesting tepid bull movement ahead. But looking at the MACD indicator, the positive histogram has started to diminish, which indicates a possible downward trend for the pair. As for the Bollinger Bands, the negative tone should intensify if the pair drop below the moving average. In conclusion, we think tha the market will be bearish as long as the 114.30 resistance line holds, and if the pair slip below the 113.26 support, a test of the monthly lows seems likely.

Resistance: 114.30, 114.70

Support: 113.26, 112.73

 

AUDUSD (4- Hour Chart)

AUD/USD rebounded on Friday, ending its three-day slide amid weaker a US dollar across the board. The pair saw some selling in the early Asian session but then was able to find demand later, posting a 0.55% gain for the day. The University of Michigan Consumer Sentiment Index for November declined to 66.8, marking the lowest reading since November 2011. Concerns about surging inflation resulted in the dismal data, which dragged the Greenback under 95.1 area. On top of that, the downbeat Australian jobs report and the rising unemployment rate might limit any meaningful gains for the AUD/USD pair.

On the technical side of things, the RSI indicator is at 45 as of writing, suggesting tepid bear movement ahead. But looking at the MACD indicator, a golden cross is shown on the histogram, which indicates an upward trend for the pair. As for the Bollinger Bands, the price moved alongside the lower band first and then rebounded toward the moving average, which could be a buying signal for the pair. In conclusion, we think the market will be bullish as the pair is eyeing a test of the 0.7432 resistance.

Resistance: 0.7432, 0.7471, 0.7536

Support: 0.7277, 0.7227, 0.7170