Markets in Motion: Data, Dollar Strength, and Policy Divergence

A combination of high-impact economic events and significant shifts in monetary policy sentiment across major economies has shaped this week’s market dynamics. Key retail sales data from the UK, Canada, and the US, alongside pivotal chart patterns in currency markets, are setting the stage for critical trading decisions. Meanwhile, the Bank of Japan’s steady monetary stance and the US dollar’s remarkable rally—bolstered by hawkish Federal Reserve expectations—underline the evolving global economic landscape. Traders and analysts are closely monitoring these developments to navigate potential opportunities and risks in the weeks ahead.

Friday 09:00 am (GMT+2) – UK: Retail Sales m/m (GBP)
Friday 15:30 (GMT+2) – Canada: Retail Sales m/m (CAD)
Friday 15:30 (GMT+2) – USA: Core PCE Price Index m/m (USD)

Since reaching a daily high of 156.736 on November 15, the US Dollar versus the Japanese Yen has retraced, triggered by a failure swing bearish reversal pattern. The peak at 155.877 did not surpass the prior peak, leading to a drop below the support level of 153.270, which set the stage for further decline. However, the reversal found support at the 261.8% Fibonacci Extension, where the bulls overwhelmed the bears, pushing the exchange rate to new highs at 157.915.
Currently, price action hovers above both the 20- and 50-period Exponential Moving Averages (EMA), validating the upward trend. Additionally, the Momentum Oscillator and the Relative Strength Index (RSI) indicate a bullish outlook. The Momentum Oscillator remains above the 100 baseline, and the RSI is above the important 50 level, suggesting continued bullish pressure.

If buyers maintain control of the market, traders may shift their focus to the following four potential resistance levels:
159.114: The first price target is estimated at 159.114, mirroring the weekly resistance, R3, calculated using the standard Pivot Points methodology.
161.941: The second level of resistance is set at 161.941, which aligns with the daily high from July 3.
169.909: The third price target is seen at 169.909, mirroring the 261.8% Fibonacci Extension drawn from the swing high, 156.736, to the swing low, 148.647.
183.056: An additional price objective is estimated at 183.056, corresponding to the 423.6% Fibonacci Extension drawn from the swing high, 156.736, to the swing low, 148.647.

If sellers take control of the market, traders may focus on the following four key support levels:
156.736: The initial support level is seen at 156.736, representing the swing high from November 1.5
152.339: The second support level is determined at 152.339, reflecting the weekly Pivot Point, PP, estimated using the standard methodology.
148.647: The third downside target is established at 148.647, corresponding to the swing low from November 3.
146.769: An additional downside target is noted at 146.769, reflecting the weekly support, S3, calculated using the standard Pivot Points methodology.

The Bank of Japan (BOJ) kept its monetary policy unchanged, maintaining the target rate at 0.25%, citing global economic uncertainty and insufficient evidence of sustainable wage growth. The Yen weakened sharply, breaking ¥157 to the dollar, as markets had been divided on whether the BOJ might tighten policy. Governor Kazuo Ueda highlighted concerns over the vague outlook for US economic policy under the incoming Trump administration and recent volatility following the Federal Reserve’s rate cut. Analysts anticipate the BOJ will evaluate further wage growth and market conditions before considering another rate increase, potentially delaying any decision until early 2025.
As reported by Bloomberg, the US dollar surged to its strongest level since 2022 following the Federal Reserve’s decision to lower interest rates by 0.25% while signaling a slower pace of easing for 2025. Analysts attributed the rally to hawkish Fed expectations amid strong economic data and concerns about inflation stalling above the 2% target.
President-elect Donald Trump’s tariff threats and the US economy’s resilience compared to global peers further supported the dollar. While many strategists predict continued dollar strength through 2025, some anticipate a peak by midyear as global rate cuts revive growth outside the US.

In conclusion, this week’s market movements have been driven by a combination of high-impact economic events, pivotal chart patterns, and contrasting monetary policy decisions across major economies. Key data releases, including retail sales from the UK, Canada, and the US, alongside bullish trends in the US Dollar versus Japanese Yen, highlight significant trading opportunities. The Bank of Japan’s cautious approach and the Federal Reserve’s hawkish stance emphasize the divergence in global monetary policies. As uncertainties around inflation, wage growth, and geopolitical factors remain, traders should carefully monitor these developments to navigate potential risks and capitalize on emerging trends.