Global macro overview for 24/07/2018
The recent Trump’s comments regarding the US Dollar did not help him much, but there is another risk of successive remarks of the US president, which are unbearable, especially tomorrow when Trump meets with the head of the European Commission Juncker. In addition, the global investors are still focused on fundamentals and these continue to support the dollar. Yesterday’s data from the real estate market, although at first glance, showed a lower reading than forecasts, then sales problems are taking place with an insufficient number of vacant homes. The Americans want to continue to buy, but it is getting harder and harder. Secondly, China announced at the beginning of the day new measures to ease the monetary and fiscal policy, mainly aimed at increasing lending and strengthening domestic demand. A side effect (or deliberate in the field of commercial war) is the weakening of the yuan and pushing capital towards the USD. Thirdly, we observe the decrease in US Treasury bonds and an increase in yields, which traditionally helps the dollar. This last aspect is quite peculiar, because the reasons for the debt sale lie in the speculation about a possible change in the strategy of the Bank of Japan. BoJ is expected to increase the yield on Japanese debt (keeping the 5-year profitability close to 0.0% instead of the 10-year-old), which will increase the attractiveness of bonds for Japanese investors who will return with capital, among others from the US market. However, the BoJ will allow only a slight increase in profitability (as it remains in an expansionary attitude), but the field for profitability growth in the US is much larger. Hence, the benefits of USD are also more possible.
Let’s now take a look at the USD/JPY technical picture at the H4 time frame. The bulls have made a recent swing top at the level of 113.17, but the higher prices were rejected and the price has to plummet towards the technical support at the level of 110.80. Currently, the market is trying to bounce towards the level of 11.66 (38% Fibo), but the key technical zone is located between the levels of 111.95 – 112.24. Only a sustained breakout above this level will open the road towards the recent highs, otherwise, the price is likely to drop further.