TECHNICAL ANALYSIS – USDJPY INTRADAY BULLISH AS PRICES CHALLENGE THE CLOUD TOP

TECHNICAL ANALYSIS – USDJPY INTRADAY BULLISH AS PRICES CHALLENGE THE CLOUD TOP

TECHNICAL ANALYSIS – USDJPY INTRADAY BULLISH AS PRICES CHALLENGE THE CLOUD TOP

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TECHNICAL ANALYSIS USDJPY has been edging higher for a second straight day. The pair today hit a weekly high.

Delving into the Ichimoku analysis, the Tenkan-sen line (red) crossed below the Kijun-sen one (blue) in mid-January. This is a short-term negative signal. However, the stochastics which transmit immediate market sentiment are painting a bullish intraday picture as the %K line is at bullish levels at 62, while it has also crossed above the slow %D line. Both these facts indicate positive intraday momentum.

 



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TECHNICAL ANALYSIS

In its intraday movement, the price has moved above the 50-day moving average (MA) which is currently at 115.10 and is challenging the cloud top at 115.25. The area from the cloud top up to the Kijun-sen line (at around 115.50) is expected to provide some resistance to upside moves. A successful close above this area will bring into view the 117 area, a key area in the past which is likely to act as resistance. If prices cross this as well, the mid-December 10-month high of 118.66 would be subsequently eyed.

On the downside, the area around 114 which is where the Tenkan-sen line is currently situated is likely to act as immediate support to potential downside pressure. Should prices break below it, the late January 7-week low of 112.516 would come into focus as another important support level.

Finally, it is worth mentioning that the pair recorded a bullish (golden) cross at the start of December when the 50-day MA moved below the 200-day one. This is a medium term bullish signal whose strength will be reinforced should prices move comfortably above the 50-day MA.
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Fed Officials Challenge Decades of Accepted Wisdom on Inflation

Fed Officials Challenge Decades of Accepted Wisdom on Inflation

Fed Officials Challenge Decades of Accepted Wisdom on Inflation

Still, not everyone on the FOMC is convinced.

Fed Officials Challenge Decades of Accepted Wisdom on Inflation

Over the last year, Federal Reserve officials have dramatically curtailed ambitions for interest-rate increases, even as inflation has risen and unemployment has declined. So what gives? Perhaps just as important as the increased attention being paid to headwinds from abroad are the changing attitudes of Fed policy makers toward inflation. That suggests more confidence they can afford to keep borrowing costs lower for longer, because there is less concern that price pressures will get out of hand. Conventional wisdom says actual inflation trends depend largely on inflation expectations, and to a lesser degree, the amount of slack

Inflation Expectations

Fed Officials Challenge Wisdom on Inflation

Central bankers are also coming to terms with the fact that they don’t really understand what they believe to be the more important determinant of inflation — expectations — very well either.

Take a recent study by Fed economist Jeremy Nalewaik, who found that while inflation expectations and actual inflation were closely connected prior to the mid-1990s, the relationship has deteriorated markedly since then.

“Movements in inflation expectations now appear inconsequential since they no longer have any predictive content for subsequent inflation realizations,” Nalewaik wrote.

This helps explain why the “risk-management approach” to monetary policy in the current environment — a phrase now in use by influential policy makers like Fed Governor Lael Brainard, New York Fed President William Dudley and Chicago Fed President Charles Evans — is spreading among officials. They simply see very little risk that inflation will surge out of control.

The Chicago Fed chief also questioned a fundamental notion that has governed the actions of central bankers since Milton Friedman famously quipped in 1960 that monetary policy works with long and variable lags. The implication of Friedman’s observation is that the Fed must begin raising rates before inflation gets to its target.

“That was very much a 1970s phenomenon, where inflation expectations continued to increase as policy didn’t meet reasonable inflation goals,” Evans said. “I think we should be careful in wondering how many things that we learned from previous periods are still really front and center, and still truly active.”

… (full story)

Gorilla or Elephant, Chinese Surplus Capacity is the Challenge

Gorilla or Elephant, Chinese Surplus Capacity is the Challenge

Gorilla or Elephant, Chinese Surplus Capacity is the Challenge

Gorilla or Elephant, Chinese Surplus Capacity is the Challenge

Americans have a saying about an 800-pound gorilla in a room. It refers to a person or organization so powerful that it can act unilaterally. The British have an expression about an elephant in a room. It refers to a “fact” or problem that is not being addressed. Regardless of the idiom, one prefers, both can apply to China and its excess capacity in a wide range of industries. Making room for China in the global economy was always going to be difficult, but it is taking place. China is the host of the G20 this year, and in a few months, the yuan will formally join the SDR, even though its role in the world economy

China’s largest steel producers are state-owned.  It can force industrial consolidation relatively easier compared tothe challenge of facilitating the industrial rationalization when the major agents are privately owned.   This is precisely the path that China is pursuing.  It is facilitating industry consolidation by having the top four to form two combines.  Shanghai Baosteel and Wuhan Iron and Steel Group will form a Southern China Steel Group.  A Northern China Steel Group will be formed from the combination of Shougang Group and Hebei Iron and Steel Group.
Despite a previous round of consolidation, China’s steel industry remains fragmented, which presents all sorts of coordination challenges.  In 2013, the top 10 Chinese producers had a market share of less than 40%.  In 2010, their share stood at 49%.  Over the next decade, the government goal reportedly is to boost their share to 60%.
China’s steel exports increased in H1 2016 by 9% or almost five mln metric tons (to 457 mln metric tons). Exports rose 11.5% in 2014 and about 14% last year.   Domestic demand rose 1% to almost 680 mln metric tons.  The surprising news this week is that China’s steel industry reportedly turned a profit in H1despite the adverse conditions.  The members of the China Iron and Steel Association who’s members account for 80% of the country’s steel production, reported a CNY12.6 bln (~$1.9 bln) profit in the first half of the year.  It is about four times larger than the profit in H1 15.

… (full story)