It is day 6 of the US government shutdown, which is taking centre stage, as the disagreements between Trump and Congress continue. Dow surges more than a 1000 points making the biggest gain in a one-day trading session.
A real drama is ongoing in the US political arena, at the moment, as US president Trump and the Congress cannot agree on the spending plan, proposed by Donald Trump. The plan includes the 5 billion dollars that the president is asking in order to go ahead with building the controversial boarder wall between the US and Mexico.
The Senate have signed a temporary funding bill, which keeps the government spending at current levels right through February. But, of course, this came as a backlash from Trump, as he has told that he won’t sign the bill, because it did not include the required amount for funding the wall. This was followed by another bill, addressed to the Senate, which requested the full amount of 5 billion dollar. But unfortunately for Trump, it did not pass. According to the Antideficiency Act, in such political scenarios, it requires to begin a, so-called “shutdown” of the federal government, which means that certain government departments and agencies must take, what is called a furlough. This is a temporary forced leave of employees, which could be caused by bad economic conditions within a company or government.
So, what happens now? Well, the Senate should reopen today, but it may still look gloom and doom for Trump, as the Senate leader, Mitch McConnel, won’t allow the lawmakers to vote until a consensus is reached on the bill. But the House Democrats are not rushing to sign anything yet, as they know that on January 3rd, they will control the majority in the House and then it would be even more difficult for the president to pass any of his bills.
USD/JPY had a great run yesterday, together with the US equity markets, where the pair managed to get back some of its lost grounds. That said, overall, USD/JPY still looks bearish, as near-term trend has turned to the downside. The pair is trading below its short-term downside resistance line taken from the high of the 17th of December. As long as it remains intact, we will continue aiming lower.
A drop back below the 110.67 hurdle, marked by the intraday swing high of yesterday, may lead towards a re-test of the recent December low at 110.20. This is where the rate could stall for a bit, but if the bears remain strong, a new December low may be established. This is when we will aim for the 109.77 zone, which was the low of the 21st of August.
Alternatively, if USD/JPY breaks the aforementioned short-term downside resistance line and moves above the 111.40 barrier, this might open the door to the next potential area of resistance at 111.70, a break of which could lead towards a test of the 111.95 level, marked by the inside swing high of the 26th of October and the lows of the 18th and the 23rd of the same month.
Yesterday, while parts of the world were still celebrating the second day of Christmas, the US market opened as usual. Even before the opening bell, the top three US indices were above their Monday’s closing prices, but when the bell rang, the US equities surged and ended the trading day in the positive territory. The Dow Jones Industrial Average and the S&P 500 fell shy of 0.02% and 0.04%, respectively, from hitting a 5% gain on the day, whereas Nasdaq managed to achieve a 5.84% gain at its close.
Among the big winners were the retailers and according to the data released by the Mastercard SpendingPulse, they have had their best holiday season in six years. Amazon came out saying that they have sold a record amount of items this holiday season, which pushed the company’s stock higher and closed it with a 9.45% gain.
The spotlight fell on the Dow Jones Industrial Average index, which gained around 1086 from the open to the close of the trading day. This was seen as a breath of fresh air for the stock market, following the sharp sell-of that we saw from around mid-December. Now, the big question here is, can the yesterday’s momentum keep up, at least for a few more days before the end of the year?
From the short-term technical side, yesterday’s recovery could have a follow through today, as the momentum has picked up slightly. Looking at the daily DJIA cash index chart, it is now retracing a bit lower, which might be seen a small correction before another push higher. If the 22575 level holds the price from dropping lower, this might attract a few more bulls, in order to drive the index towards a bit more recovery.
As mentioned above, if DJIA decides to retrace lower, but fails to drop below the 22575 hurdle, marked by the inside swing high of the 24th of December, this could be seen as a good opportunity for more bears to step in and drive the index a bit more to the upside. A break above the 23020 level, may lead the price to the 23335 resistance area, which on the 2nd of April acted as support. Slightly above that lies another potential resistance zone at 23530, marked by the low of the 3rd of May, which could slow down the price acceleration. This is where the index could meet the 21 EMA.
On the downside, a drop below the 22575 barrier, may invite more bears back to the table for another push lower. This is where we will aim for a re-test of the 22180 obstacle, marked by the high of the 8th of August last year, a break of which may clear the path back to the yesterday’s lows at 21525.
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