US labour market focus:
Yesterday’s release of US Fed minutes showed that about half of the
participants incorporated an assumption of more expansionary fiscal
policy in their forecasts. In their discussion of their economic
forecasts, participants emphasized their considerable uncertainty about
the timing, size,and composition of any future fiscal and other economic
policy initiatives as well as about how those polices might affect
aggregate demand and supply. The Fed expressing these uncertainties may
have contributed to the USD overnight retreat, but it has increased as
well the potential impact of Friday’s US December labour market report.
A strong reading adding to our perception the US is closing its output gap should put the USD back into its bullish trend. MS’s Ted Wiseman predicts an above market NFP gain of 185k.
Trading USD Correction:
China taking care of this risk is good news for global reflation and
since USD bullishness against low yielding currencies is part of
this reflation trade we suggest that the current USD correction will
prove to be a short-term affair. In particular, we would exclude an
outcome experienced last year when a change in the Fed's rhetoric caused
the USD to fall back by 6.5%.
corrections within the current environment should not exceed 2%,
suggesting EURUSD near 1.0650* providing a selling opportunity and
USDJPY near 114.45 providingus with a buying opportunity.
EURUSD current 1.0580 overall trend is down support 1.0510
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