Two trades to watch: FTSE, USD/JPY

FTSE falls despite inflation ticking lower

After US stocks closed well off the daily highs yesterday, stocks in Europe, including the FTSE, are edging a few ticks lower on Wednesday.

UK inflation falling from a 41-year high it's helping to limit losses. UK CPI cooled by more than expected in November to 10.7% YoY, from October 41-year high of 11.1%. This was below the forecast of 10.9% and raises hope that inflation may have peaked. While one data point doesn’t constitute a new trend, it is a move in the right direction and comes as inflation in the US, and the eurozone shows signs of cooling.

Attention will now turn to the Bank of England’s interest rate decision tomorrow, where the central bank is widely expected to raise interest rates to 3.5%, up from 3%. A slowing pace of rate hikes or a less hawkish BoE could be good news for the FTSE.

Where next for the FTSE?

After running into resistance at 7620, the December high, the FTSE rebounded lower, hitting support at 7420. From here, the FTSE index has attempted to stage a recovery but has struggled to rise above the falling trend line dating back to April. The RSI is above 50, so it supports further upside.

Buyers need to rise about 7510, the falling trend line resistance, in order to test 7550, the weekly high ahead of 7620. a rise above her creates a higher high, bringing 7700 into focus.

Failure to rise above the falling trendline resistance could see the path full back to test 7425 the December I'm. A break below here exposes the 200 sma at 7335.

USD/JPY falls ahead of the FOMC rate decision

USD/JPY found 1.5% in the previous session and is extending losses today as investors turned to the Federal Reserve interest rate decision.

The US central bank is expected to raise interest rates by 50 basis points to 4.5%; a downshift after hiking rates by 75 basis points at the past four straight meetings.

Federal Reserve Chair Jerome Powell guided for a slower pace of rate hikes in his Brookings speech at the end of November.

In addition to the rate decision, investors will be watching the latest quarterly growth and inflation projections. With inflation cooling faster than expected, a downward revision of two inflation projections could pull the U.S. dollar lower.

However, the Fed’s terminal rate will also be in focus any signs of this rising above 5% suggests the Fed will be raising interest rates for longer, which could boost the US dollar.

Where next for USD/JPY?

USD/JPY has been trending lower since late October, forming a series of lower highs and lower lows. The pair fell below its 50 sma but has found support on the 100 & 200 sma at 135.15. However, any move higher has failed to push over 137.80. The RSI below 50 keeps sellers hopeful of further downside.

Sellers could look for a break below the 100 & 200 sma at 135.15 and 134.60, the weekly low. A break below here opens the door to 133.60, the December low, with a fall below here creating a lower low.

On the flip side, should buyers successfully defend the 100 & 200 sma, the price could look to rise above 137.80, the weekly high, to bring 140.00, the round number into focus.