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Shaky Equities Could Dictate Dollar Trends into New Year

FOREX
  • The JPY is furtively the firmest performer in G10, rising against all others to put USD/JPY through yesterday's lows and narrow the gap with the levels seen ahead of the BoJ decision earlier in the week. The 142.25 level marks key support ahead, a break below here would be bearish.
  • The late sell-off for US equities on Wednesday has reminded markets that price action can remain volatile despite the proximity to the holiday break. US futures are paring losses, indicating a higher open on Wall Street later today, however the e-mini S&P remains a good 50 points off yesterday's highs.
  • The USD Index sits modestly lower. Early month-end rebalancing models look to the sharp global stock market rally across December as pointing to greenback sales into month-end, of which flows may be front-loaded due to the staggered nature of market closures across the next week or so.
  • GBP trades poorly, with GBP/USD holding the entirety of the post-UK CPI losses. The pair has plumbed a new low at 1.2612, however losses are deemed corrective in nature, as the underlying technical bull trend remains intact. The picture would deteriorate on a move below the 1.2500 handle - the Dec13 low - and the 200-dma of 1.2514.
  • US PCE data and the weekly jobless claims numbers take focus during US hours. GDP sees its third revision, meaning markets may pay little attention to the backward-looking release. The Q3 data is expected unrevised at an annualized rate of 5.2%. ECB's Lane is set to speak, however his appearance yesterday may mean fresh policy messaging is unlikely.
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