Dollar continues to gain after the new tax law and the pound drops after obstacles in the European talks
The British Pound ended a volatile session little-changed against the US Dollar after Brexit negotiations failed to show sufficient progress. When reports that no Brexit deal was reached between the UK and EU at their meeting in Brussels, Sterling slumped before trimming its losses. The Dollar Index (USD/DXY) finished up 0.1%, extending gains following the US Senate’s passing of tax bill over the weekend.
Data releases were light yesterday. Australia’s ANZ Job Ads rose 1.5%, equaling the previous gain. Spain’s Unemployment Change saw a marked improvement and beating expectations falling to 7,300 against an expected 54,300.
UK Construction PMI rose to 53.1, better than median forecasts of 51.2.
US Factory Orders bettered expectations at -0.1% against a median forecast of -0.3%.
Wall Street stocks rose with the Dow and S&P 500 hitting record highs. The S&P 500 gained 0.3% to 2,650 (2643) after reaching an all-time high.
Global yields rose. The yield on the benchmark Ten Year US Treasury climbed to 2.38% from 2.36% yesterday. The US Two Year Bond Yield climbed to 1.81% (1.77% yesterday). Germany’s Ten Year Bund yield climbed 4 basis points to 0.34%. Japan’s Ten Year JGB yield was unchanged at 0.03%.
USD/DXY – grinds higher to 93.17 (92.90 yesterday)
EUR/USD – slips to 1.1857 (1.1875)
GBP/USD – ends little-changed at 1.3475 (1.3472 yesterday. The Pound initially slumped to 1.3414 from 1.3520 before paring its losses.
USD/JPY – slips to 112.40 from 112.60
AUD/USD – slightly down to 0.7597 (0.7607)
USD/CAD – consolidates to close at 1.2685 (1.2690 yesterday)
Outlook: The US Dollar retained much of its bid tone through much of the European and US trading session following the Senate’s tax bill passage. Markets downplayed the political rumblings in Washington over the Trump administration’s Russian ties. The Euro slipped against the broadly stronger Dollar. Sterling recovered its losses after Brexit talks ended without a deal in the meeting between British PM May and the European Commission President Juncker. Both officials kept the talks alive with positive statements. Juncker said he was very confident they would reach an agreement this week.
USD/JPY slipped from its highs reached early yesterday. The Australian Dollar was little-changed ahead of retails sales data and the RBA’s policy meeting later on today.
Events and economic data releases today:
Australian Q3 Current Account Balance and October Retail Sales: (GMT 12.30 am, Dec 5/Local Time 11.30, Dec 5) forecast for Q3 Current Account Balance: -AUD 8.8 billion against -AUD 9.6 billion; October Retail Sales: 0.3% from 0.0%.
Australia RBA Interest Rate Decision and Rate Statement: (GMT 3.30 am, Dec 5, Local Time 2.30 pm, Dec 5): forecast: the RBA is expected to keep it’s Cash Rate unchanged at 1.5%
Euro Zone November Final Services PMI: (GMT 9 am, Dec 5/Local Time 8 pm, Dec 5) forecast: 56.2 from 56.2
UK November Services PMI: (GMT 9.30 am, Dec 5/Local Time 8.30 pm, Dec 5) forecast: 55.2 from 55.6
US October Trade Balance: (GMT 1.30 pm, Dec 5/Local Time 12.30 am, Dec 6) forecast: -USD 47.5 billion from -USD 43.5 billion
US ISM Services PMI: (GMT 2.45 pm, Dec 5/Local Time 1.45 am, Dec 6) forecast: 55.4 from 54.7
US ISM Non-Manufacturing PMI: (GMT 3 pm Dec 5/Local Time 2 am, Dec 6) forecast: 59.2 from 60.1
Trading View: The Dollar needs fresh impetus to keep its bid tone alive and sustained. Politically the US tax bill has to move into its next stage which is the reconciliation between the Senate and House bills. The week’s big risk event is the US Non-Farms Payrolls data this Friday with a week to go before the Fed’s December policy meeting (Dec 12/13). Markets are expecting a slight fall in a 200,000 jobs gain following last month’s 261,000. The Jobless rate is expected to remain at 4.1%. The focus will be on Wages which will determine the Fed’s forward guidance and market reaction.
The Dollar Index (USD/DXY) has strong resistance at 93.50. Last night high traded was 93.355. Immediate support lies at 93.00 and then 92.80. Ahead of Friday’s US Payrolls data, we can expect consolidation between 92.60 and 93.40. Meantime political surprises are always possible.
EUR/USD – slipped in relatively quiet trading to 1.1857 from 1.1875 yesterday. Overall range for the Single Currency was a pretty narrow 50 points (1.18291 and 1.18786). Immediate resistance lies at 1.1880 with immediate support found at 1.1830. Euro Zone data continues to improve with a huge improvement in Spain’s unemployment change. In the political sphere, there has been no progress in Angela Merkel’s coalition talks. It’s the US Dollar that will dictate the Euro’s moves. Likely range today 1.1835-1.1885. Look to sell rallies, the speculators are still long Euro bets.
GBP/USD – continues to trade in choppy fashion on the Brexit talks. The failure to reach an agreement was due to one of three major issues which concern the Irish border. Northern Ireland insists it must leave the European Union on the same terms as the rest of the UK. Settlement of the “divorce bill” or the financial settlement is another major issue. Markets were optimistic last week that PM May had the right amount to settle the bill. This remains to be seen. Both leaders (May and Juncker) described talks as constructive and will reconvene their meeting later this week. UK economic data yesterday saw Construction output beat forecasts.
GBP/USD has immediate resistance at 1.3500 and then 1.3520. Immediate support can be found at 1.3450 and then 1.3430. Trading will continue to be choppy. Likely range 1.3420-1.3520.
AUD/USD– big data day for the Aussie today with the Trade balance, retail sales and the RBA policy meeting. The RBA is expected to keep its cash rate at 1.5% and leave policy guidance unchanged. The current account balance for Q3 and Retail sales are released just ahead of the RBA. Retail Sales is expected to improve to 0.3% from 0.0%. China’s Caixin Services PMI data is also due out later today. The Aussie has been in a wider 0.7530-0.7660 range and unless we see a big surprise later don’t expect the currency to move outside of that. Australian Q3 GDP is due tomorrow.
AUD/USD has immediate resistance at 0.7620 and then 0.7640. Immediate support lies at 0.7585 and 0.7565. Likely range today 0.7555-0.7625. Prefer to sell rallies.
USD/JPY – closed at 112.65, little-changed from yesterday. The Dollar looks like it’s consolidating between 111.80 and 113.20 for now. The US ten-year yield climbed two basis points last night and this will keep the USD/JPY supported. Likely range today 112.20-112.90. Prefer to sell rallies on USD/JPY and Cross/JPY.
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