USDJPY – Will the Gap Hold?

USDJPY – Will the Gap Hold?

Chart Of The Day

The dollar was better bid today with USDJPY gapping higher on the week’s open in Asia as currency markets breathed a sigh of relief that the Flynn indictment may not have been as politically damaging to Donald Trump as initially reported. The passage of the tax cut bill by Senate was also viewed as bullish for US growth with benchmark 10-year yield popping to 2.40% in morning European dealing.

But tomorrow we get an insight into how well the US economy is doing. ISM Non-Manufacturing report covers more than 70% of the US economy and is the 2nd most important data point for investors after the NFPs.

The market is looking for a modest pullback on the headline, but the true interest of traders will the employment component which tends to be the single best forecaster of the job report and the price paid component which could an early hint that inflationary pressures are finally making their way through the economy.

If ISM beats to the upside it could unleash a rally in rates, and USDJPY could head towards 114.00 as all systems will signal go for US growth.

Will EURO Gap be Filled?

Will EURO Gap be Filled?

Chart Of The Day

Will EURO Gap be Filled?

The euro exploded higher after centrist Emmanuel Macron “won” the first round of the French Presidential election. Of all the probable scenarios, this was the best outcome for the euro, which explains why EUR/USD gapped above 1.09 when the markets opened for trading on Sunday evening. Macron is pro euro, pro EU whereas Le Pen wants a referendum on EU membership shortly after her victory. Although investors are relieved about Macron’s victory, there has been very little follow through in the leading investors to wonder if the gap near 1.0730 will be filled. While it can be argued that we won’t know who the final winner will be for 2 more weeks, Macron has a very good chance of winning so there’s less need for investors to hedge against a Le Pen victory. The latest German IFO report also supports a stronger currency with the business confidence index rising to 112.9 from 112.4. However there are 2 big risks for the euro this week – the first is Thursday’s European Central Bank monetary policy announcement and the second is a tax reform announcement by U.S. President Trump on Wednesday. The central bank wants the market to understand that policy is accommodative and will remain so for the foreseeable future and if that is emphasized on Thursday, the euro could fill its gap quickly. President Trump is also set to make a big announcement on tax reform Wednesday and if he effectively convinces the market of his plans, the dollar could soar, sending EUR/USD lower.

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Technically, this 4 hour chart shows EUR/USD support at 1.0820. If it falls below 1.0820, its headed for 1.0730. However the longer it holds above 1.0820 and even 1.0840, the more bullish it is for the currency and the greater the chance of a move back above 1.09.

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