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The US dollar is falling against a basket of major currencies due to news from the White House. The US government partially suspended its work on the weekend after Donald Trump demanded funds for the construction of the wall on the border with Mexico. Yesterday, the US President announced that he would not resume the work of the government until the demand was fulfilled. The dollar index (#DX) updated monthly lows and closed on Monday in the negative zone (-0.46%).

Also, Donald Trump's dissatisfaction with the next increase in interest rates put pressure on the US dollar. The US President believes that the Fed is the biggest problem of the American economy and may soon demand the Fed's Chairman Jerome Powell to resign. Yesterday, the news feed was calm due to Catholic Christmas and financial markets were closed. Today, the financial markets of most countries are also closed due to the Boxing Day.

The "black gold" prices are recovering after a sharp collapse the day before. At the moment, futures for the WTI crude oil are testing the mark of $43.00 per barrel.

Market Indicators

• On Monday, aggressive sales were observed in the US stock market: #SPY (-2.64%), #DIA (-2.67%), #QQQ (-2.76%).
• The 10-year US government bonds yield has continued to decline. At the moment, the indicator is at the level of 2.72-2.73%.

The news feed on 26.12.2018:

• Today, the publication of important economic news is not expected.

The US dollar is attempting to move higher against the Japanese yen currency as demand for the greenback returns after early week selling. The short-term recovery in the USDJPY pair remains fairly muted, given the recent decline towards the 110.26 level. Intraday buyers will likely aim for the 110.80 resistance level, while sellers need to break the current weekly trading low to encourage further technical selling.

The USDJPY pair remains bearish while trading below the 110.80 level, key technical support is found at the 110.26 and 109.76 levels.

If the USDJPY pair trades above 110.80 level, buyers may test towards the 111.00 and 111.44 levels.

The euro currency is back under downside pressure against the US dollar following another failed attempt at the 1.1430 resistance level. The EURUSD pair is intraday bearish while trading below the 1.1410 level and may weaken towards the 1.1356 level. The Moving Average Convergence Divergence indicator on the four-hour time frame is also started to trend lower.

The EURUSD pair is bearish while trading below the 1.1410 level, key technical support is found at 1.1356 and 1.1330 levels.

If the EURUSD pair trades above the 1.1410 level, buyers may test towards the 1.1438 and 1.1455 levels.

Thin trading will be experienced today as people around the world are on their Christmas break. Many markets including Australia, United Kingdom and Canada will remain closed today. This comes after the markets in the United States saw major declines on Monday this week. Traders were concerned about the current issue of rising interest rates, dysfunction in Washington and trade. These declines have made this December the worst for the markets in decades.

The government shutdown in the United States continued as most policymakers left Washington for the holidays. With most legislators away, there is a high likelihood that the shutdown will continue for weeks. Democrats are not incentivized to do anything because on 3 January, they will retake the house of representatives. Republicans will retain the senate but will not have the required 60 votes required to vote on any point.

The Bank of Japan released the minutes for the meeting held in October. The minutes showed that the bank’s officials were divided on the impacts of the current easy money policy. Of key importance was the division surrounding the bank’s policy of letting bond yields to move flexibly around the zero percent target. One official said that the bank should not rule out widening the range in which bonds could move. Another member warned that with inflation still at low levels, allowing the free movement of bonds could cast doubt on the bank’s commitment of reaching its inflation target.

EUR\USD

The EUR\USD pair was little moved in the Asian session as most traders stayed away from the market. The pair is now trading at the 1.1405 level, which is higher than this month’s 1.1270. The RSI has moved to the 50 level while the price is along the 14-day Simple moving average. The pair will likely remain along these levels. The upward trend is likely to continue as the US shutdown continues.

GBP\USD

The GBP\USD pair declined slightly in the overnight session. Today, the UK market will remain closed as most policymakers remain out of London. Therefore, focus will be on the United States, where Donald Trump remains in Washington. On the hourly chart, the current price of 1.2700 is slightly below the lower band of the Bollinger Bands while the Average True Range (ATR) has continued to move up.

AUDJPY

The AUDJPY pair continued the declines after the BOJ released the minutes for the October meeting. The pair is now trading at the 77.72 level, which is the lowest it has been since December 2016. The relative strength index has fallen below the oversold level while the price is along the lower band of the Bollinger Bands. The momentum indicator too has fallen below the 100 mark. The downward trend will likely continue though this could change as the new year starts.

The USD/JPY has followed a drop in Equities and a prolonged government shutdown caused a major loss of demand for the USD.

Technically the price is at the support zone now. Huge order block at 111.37 suggests a possible rejection on the retracement to the upside. Adding to this we also see M L5 so the zone is 111.35-60 where we could see another rejection and fresh sellers. Targets are 110.50 and 110.15. A daily or 4h close below 110.15 suggests further weakness towards 109.60 and 109.37. Pay attention to these levels and never forget the correlation between the USD/JPY and major Equities such as Nikkei, SP500 and DAX.

Notes/Observations

• Most of the markets across Europe remain shut on for Boxing Day holiday
• No Christmas Break for the correction; equities still reeling from the not-as-dovish-as-hoped Fed decision from last Wednesday; S&P 500 entered a bear market
• Mood expected to be cautious following recent heavy sell-off across the globe amid rising concerns about growth and trade war jitters
• Political developments in Washington remain a focus

Asia:

• China PBoC adviser Sheng Songcheng: China would not resort to large scale monetary stimulus in 2019 as doing so would risk re-heating the property market. Saw room to further cut the reserve requirement ratios (RRR) but not likely to lower the benchmark interest rates
• BOJ Gov Kuroda: Must seek most appropriate policy while balancing benefits and costs of policy; affirmed BOJ to do upmost to reach price target
• BoJ Oct meeting minutes reiterated that most members shared view momentum toward achieving 2% inflation was being maintained. Showed a divide over the effects of easing, while the minutes from the bond market group showed they want to see BOJ accelerate JGB purchase reduction
• Bank of Korea (BOK) annual monetary report kept its open ended inflation (CPI) target unchanged at 2.0% for both 2019 and 2020 period; to review every 2-years; to keep accomodative monetary stance to prop up the economic recovery

Americas:

• President Donald Trump dug in and said lawmakers must approve funding for his border wall if they hope to end the government shutdown, a sign the impasse may not be quickly resolved when Congress returns to session after the holidays
• Mastercard Spending Pulse: Total U.S. retail sales (ex-autos) +5.1% between Nov. 1 and Dec. 24 from a year earlier; strongest level in 6 years

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Speakers

• Thailand Finance Ministry spokesperson Pisit Puapan stated that it expected Q4 GDP growth to be higher than Q3's pace. Noted that overall 2018 GDP growth target of 4.5% is dependent upon spending and tourism

Currencies/Fixed Income

• USD was steady in quiet trade on Dec 26th but remained vulnerable due to the US federal government partial shutdown and President Trump's hostile stance towards the Federal Reserve chairman. US bond yields have declined amid the recent equity rout, including a steep sell-off in oil which has sent money into safe-haven assets

Economic Data

• (ES) Spain Nov PPI M/M: -1.0% v 0.0% prior; Y/Y: 3.0% v 4.6% prior

Fixed Income Issuance

• (IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills

Looking Ahead

• 06:30 (TR) Turkey Dec Real Sector Confidence (Seasonally Adj): No est v 96.8 prior; Real Sector Confidence NSA: No est v 92.8 prior
• 06:30 (TR) Turkey Dec Capacity Utilization: No est v 74.1% prior
• 07:00 (RU) Russia to sell OFZ bonds
• 09:00 (US) Oct S&P Case-Shiller 20-City M/M: 0.30%e v 0.33% prior; Y/Y: 4.75%e v 5.15% prior; House Price Index (HPI): No est v 213.76 prior
• 09:00 (US) Oct S&P Case-Shiller (overall) Y/Y: No est v 5.51% prior; Overall HPI Index: No est v 205.82 prior
• 09:30 (BR) Brazil weekly Currency Flow data
• 10:00 (US) Dec Richmond Fed Manufacturing Index: 15e v 14 prior
• 10:00 (MX) Mexico weekly International Reserve data
• 11:30 (BR) Brazil Nov Total Federal Debt (BRL): No est v 3.8T prior
• 13:00 (US) Treasury to sell 5-Year Notes

Downside risks have been dominating the single European currency against the Japanese Yen since December 24. the currency pair depreciated more than 110 base points during the last two days.

The exchange rate is trading near the upper boundary of a one-week descending channel pattern at 125.87 during the first part of Wednesday's session and could be set for a breakout.

If the breakout occurs, the EUR/JPY currency exchange rate will target a resistance cluster formed by the combination of the weekly, the monthly pivot points and the 100-hour simple moving average at 127.27.

The Australian Dollar has continued to trade in a one-week descending channel pattern against the US Dollar. The currency pair tested the upper boundary of the channel pattern during the Asian session on Wednesday.

As for the near future, it is likely that the downside movement will continue within this session. The possible target for the exchange rate will be at a psychological support level of 0.70.

However, given that the currency exchange rate has breached the upper boundary of the descending channel pattern, the pair could aim for the 100-hour simple moving average at 0.7084 today.

The 50-hour simple moving average has guided the US Dollar higher against the Canadian Dollar since December 24.

Presently, the exchange rate is trading near a support level formed by the 50-hour SMA at 1.3593.

If the currency pair passes the support level as mentioned above, the next target will be at a support cluster near the 1.3527 area.

On the other hand, if the 50-hour moving average holds, bullish traders could push the currency exchange rate towards the upper boundary of a one-week ascending channel pattern at 1.3650.

Bearish sentiment has been dominating the New Zealand Dollar against the US Dollar since December 24.

The exchange rate is presently stranded between SMAs. The 50-hour simple moving average at 0.6730 is providing support for the pair, while the 100-hour SMA at 0.6751 is providing resistance.

Technical indicators demonstrate that the currency exchange rate will likely continue its downside momentum within this session. Bearish traders could aim for a psychological support level at 0.6700 during the following trading session.