Dollar breaks higher to new top in USD/JPY

Overnight Headlines

*USD made fresh highs for the move, versus EUR and JPY

*US stocks were boosted by better-than-expected US retail sales

*Bitcoin falls below $60,000, finds support at 50-day SMA

*UK CPI 4.2% y/y vs 3.9% expected (prior 3.1%), core 3.4% vs 3.1%

USD keeps on strengthening. This morning, EUR dropped to 1.1263 and USD/JPY moved higher to 114.97. The latter was its strongest since March 2017. USD/CHF moved above trendline resistance from the May 2019 highs. Commodity dollar currencies were less volatile. The greenback was helped by data showing that US retail sales rose faster than expected in October.

US equities all closed in positive territory. Supported by the solid data, cyclicals took the lead with tech the major outperformer. Asian markets are not following this morning. Hong Kong is slipping, weighed by property developers rebounding too far. Chinese blue chips are flat. Japan’s shares are mostly lower after exports slumped to an eight-month low. European and US futures are mostly lower this morning.

Market Thoughts – USD strength in full effect

We highlighted a tumbling euro yesterday. ECB President Lagarde had put another nail in the coffin of the single currency with more dovish talk. Even more hawkish members have also signalled that the bank might keep its main deposit rate below zero until after it ends its crisis-fighting bond-buying programme.

The dollar is also making decent gains versus another low-yielder, JPY. Relative macro surprises are helping. The Biden administration is keen to act on prices pressures and high inflation. This can equally be implied to be USD-positive. The dollar has certainly shifted gear. Some are calling it a “regime shift”.

Chart of the Day – USD/JPY bull flag breakout

 After a false breakdown early last week, USD/JPY has rebounded strongly. The recent 113.25/114.69 range was pierced with new lows at 112.72. But buyers quickly stepped in pushing prices back to 114.

The major formed a bullish continuation pattern in recent sessions. Yesterday’s breakout pushed through the top of the range. This morning’s high currently sits at 114.97. Prices are now just above a long-term major resistance band. There is also long-term Fib level at 114.55. Bulls will target 115.50/62 on a strong close.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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