U.S. Dollar Index

Finally the day has come; the Federal Reserve is on verge of the first rate decision of 2017. However, if the FOMC statement contains a hint of greater concern, the dollar could fall quickly and aggressively, which would support the current dollar-negative sentiment. The Fed indicated last month that at least three rate increases were in the making for 2017. The market is pricing a good chance of a 25bp rate hike in June, which is about the same as the odds at the beginning of the year.

The U.S. dollar index fell hard yesterday but remains under the given strong support area sustained in the last two months,  at the level of 100. The dollar fell 0.9 percent against the Yen on Tuesday in the wake of Trump's administration remarks.

Overnight, the dollar tumbled against a basket of the other major currencies as the Euro surged after President Donald Trump’s top trade adviser, Peter Navarro, accused China, Germany, and Japan of currency exploitation. The remarks indicated that the new administration is focusing on currencies as part of its approach in relation to trade. The Trump administration started to weigh on sentiment, and investors are looking ahead to the latest Fed views on rates later today.

Since the day President Trump entered the Oval Office, we were not surprised to see continued bearish jaw-boning over the world's reserve currency. If that fails to suppress the Greenback, the Trump administration could increase pressure on the Fed to keep interest rates lower for longer periods. I guess a “currency war” is about to start with jaw-boning from President Trump’s administration, especially from the latest comments of trade adviser, Peter Navarro, saying that certain countries were engaged in devaluing their currencies to the disadvantage of the United States.

Investors also remain on edge following Trump’s controversial travel ban, which sparked widespread protests in the U.S. and led to the firing of acting Attorney General, Sally Yates, on Monday after she told the justice department lawyers not to defend it.

Today, the U.S. dollar index, which measures the Greenback’s strength against a trade-weighted basket of six major currencies, rose 0.18% to 99.73.

The yield on the 10-year U.S. Treasury note added two basis points to 2.47 percent. It fell four basis points on Tuesday, leaving the rate with just a little changed in this month.

Let’s look at the U.S. dollar index monthly and daily charts which are given below:

The U.S. dollar index monthly chart.

U.S. dollar index daily chart.

Tuesday was the closing day of January 2017 and the U.S. dollar index dropped based on the unexpected statement from President Trump’s top trade adviser, Peter Navarro, as mentioned earlier. That was supposed to be a correction just to complete the pattern or test of strong support in a monthly chart. However, the dollar still held and gave a monthly closing above 99.50, which was expected to happen and was mentioned in one of my earlier morning briefs of this week.

I’m still confident that the U.S. dollar index must hold that level of 99.50 – 100 in order to produce an upside rally. Today is critical. In-fact, the whole week is supposed to be critical to produce direction. The U.S. dollar index stands right at the level of “make or break”. My biased opinion remains upside till it holds.

NIKKEI 225

Japan’s Nikkei 225 stabilized in Asia-Pacific trading Wednesday after two days of declines, as investors position themselves ahead of the Federal Reserve’s policy statement.

The Nikkei 225 shares average wobbled on Wednesday in the early morning but recovered losses as the day progressed, undermined by a stronger Yen and a drop of the Greenback as well. 

Chief Cabinet Secretary, Yoshihide Suga, stated in a news conference that Japan will explain to the United States that the Bank of Japan's monetary easing is aimed at achieving price stability, not at manipulating the Yen. 

While market participants remain hopeful that U.S. President, Donald Trump, will return his focus to tax reform, fiscal stimulus, and deregulation, his protectionist stances and immigration curbs weighed on overall sentiment.

The best performers were shares of Omron Corp which rose 6.6%, shares from steel group, JFE Holdings Inc., who had an up of 3.6%. This resulted after the Japanese electronics maker raised its operating profit guidance for the fiscal year through March.

The worst performer was Ricoh Co Ltd. which slipped 7.3% after posting a smaller net profit in the nine months through December and cutting its full year guidance.

Later on Wednesday, the U.S. Federal Reserve is expected to keep interest rates unchanged when it concluded its two-day meeting, the first policy decision since Trump took office, as it awaits greater clarity on his economic policies.

Let’s have a look at the Nikkei 225 Index monthly and daily chartsthat are given below:

Nikkei225 Index monthly chart.

Nikkei225 Index dailychart.

January’s closing still held the upward trend line channel and started to erase most of the losses from earlier this week.

In the daily chart, we see that the Nikkei dropped yesterday to test the strong monthly upward trend channel at 19000, as mentioned earlier in this week’s morning brief that it will hold this level and produce the upside rally.

Maybe today or tomorrow it might provide a drop to the level of 19000, just to test the strong support area of last month. That will be the time to enter long; I don’t see any hurdles above it till 19500. Volatility is also expected for short terms later today during the FOMC press conference, so be careful.

Good luck!