Dollar is trying to maintain its gains and markets waiting for the US Congress vote on the tax plan

The Dollar struggled to keep it’s gains even as US yields continued to climb. A New York Times report said that the US Secretary of State Rex Tillerson may be replaced with CIA Director Mike Pompeo.

Dollar is trying to maintain its gains and markets waiting for the US Congress vote on the tax plan

Dollar maintain its gains

The Pound extended its winning streak as Brexit negotiators inched closer to a deal on the Northern Ireland border. Sterling was up 0.8%. The Euro ended in positive territory above 1.1900.

The Kiwi slumped 0.7% after New Zealand’s ANZ Business Confidence barometer fell to -39.3 from the previous -10.1
Australian Q3 Private Capital Expenditure was at 1.0%, just short of expectations of 1.1%. Australia’s November Building Approvals climbed 0.9%, beating forecasts of -0.9%
Chinese Manufacturing PMI for November rose 51.8 from the previous month’s 51.6.
German Retail Sales missed at -1.2%, lower than expectations of 0.3%.
The Euro Zone Flash CPI Estimate rose 
to 
1.5%, but undercutting forecasts of 1.6%

In the US, the number of people claiming unemployment benefits dropped to 238,000 from 240,000 and a forecast of 241,000.
US Core PCE Price Index printed at 0.2%, the same as analysts had predicted.
US Personal Income rose 0.3%, up from expectations of 0.2%. Chicago’s Purchasing Managers Index fell to 63.9 from 662. but beating expectations of 62.2. 
Wall Street stocks rallied with the Dow up 1.14%, at 24,213. The S&P 500 rose 0.6%.

The yield on the US Ten Year Bond rose to close at 2.41%. It was the first time that the ten year yield closed above 2.4% since March. Germany’s Ten Year Bund yield fell 2 basis points to 0.36%. The yield on the Japanese Ten Year JGB was up one basis point to 0.03%. Australia’s Ten-year bond yield climbed 3 basis points to 2.49%.

 

USD/DXY – slips to 93.035, down 0.24% from 93.239 yesterday.
EUR/USD – climbs to 1.1912 at the NY close
GBP/USD – rallies to close at 1.3530, it’s the
highest close since late September.
USD/JPY – pulled higher by the US Ten year yield to 112.60 (111.85 yesterday)
AUD/USD – mildly lower at 0.7565 (0.7575 yesterday).
NZD/USD – slumps to 0.6835 from 0.6892 yesterday.

 

Outlook: The Dollar failed to capitalise on higher US yields and generally positive economic data. It was a week where politics had more weight on the currency markets. US tax reform remains a key focus. US Senator John McCain said he supported the Republican tax plan. This was a major victory for the party. McCain had previously refused to back the plan. The Dollar Index (USD/DXY) soared to 93.505 following this news. However, the New York Times report that US Secretary of State Tillerson may be replaced, together with month end flows saw the Dollar fall back.
Sterling was the big winner with optimism on Brexit negotiations continuing to support the Pound. GBP/USD has not really benefited from any US Dollar weakness and is beginning to do so now.
The Euro managed to rise back above 1.1900 after holding 
it’s levels in the low 1.1800 area.
USD/JPY rose as a result of the higher US Ten year yield. The Kiwi was the big loser hit by a drop in business confidence. This weighed on the Aussie which was unable to gain ground following better than expected Private CAPEX, Building
Approvals and Chinese Manufacturing PMI data.

 

Events and economic data releases today:

Japanese National and Tokyo Core CPI (y/y), Unemployment Rate, and Overall Housing Spending data: (GMT 11.30 pm, Nov 30/Local Time 10.30 am, Dec 1) forecasts for National Core CPI: 0.8% from 0.7%; forecast for Tokyo Core CPI: 0.6% from 0.6%; forecast for Unemployment Rate: 2.8% from 2.8%; forecast for Overall Household Spending: -0.2% from -0.3%
Australian October New Home Sales (GMT 12.30 pm, Nov 30/Local Time 11.30 am, Dec 1) previous figure was -6.1%
China Caixin Manufacturing PMI (GMT 1.45 am, Dec 1/Local Time 12.45 pm, Dec 1) forecast: 51.2 from 51.0
Euro Zone November Manufacturing PMI: (GMT 9 am, Dec 1/Local Time 8 pm, Dec 1) forecast: 60 from previous 60
UK November Manufacturing PMI: (GMT 9.30 am, Dec 1/Local Time 8.30 pm, Dec 1) forecast: 56.5 from 56.3
Canada Employment Change, Unemployment Rate and October GDP: (GMT 1.30 pm, Dec 1/Local Time 12.30 am, Dec 2) forecast for Employment Change: 10,200 from 35,300; forecast for Unemployment Rate: 6.2% from 6.3%; forecast for GDP 0.1% from -0.1%
US November ISM Manufacturing PMI: (GMT 3 pm, Dec 1/Local Time 2 am, Dec 2) forecast: 58.4 from 58.7
FOMC members Harker and Kaplan due to deliver speeches.

 

Trading View: As we start a new month and being a Friday, expect the Dollar to consolidate within recent ranges. Political headlines will once again dominate trading with the focus on the progress of US tax reform. The support from the previous holdout US Senator John McCain is a positive step towards getting the Senate bill passed. Traders will be vigilant on any further news on the Tillerman replacement issue. President Trump has had repeated clashes with the US Secretary of State and the White House is weighing a plan to replace Tillerman with CIA Director Mike Pompeo.

On the economic front, US personal income and spending increased at a healthy pace in October. The economy remains on a positive course and this should support the Greenback.

The Dollar Index (USD/DXY) has strong resistance at the 93.50 level (overnight high). USD/DXY closed at 93.035. Immediate support can be found at 92.80/90.

 

EUR/USD – traded to an overnight high of 1.19315 before settling just around 1.1900. The Euro benefited from the late weakness in the US Dollar and was supported by month-end flows. Ten Year German Bund yields fell 2 basis points to 0.36%. The yield on the Ten year US bond was up 4 basis points to 2.41%. This will limit any short-term Euro gains. Immediate resistance lies at 1.1930 and then 1.1950. Immediate support lies at1.1880. The speculative community remains long in Euro. Likely range today 1.1870-1.1920. Look to sell rallies.

EUR/USD 
GBP/USD – jumped to an overnight high of 1.35491 following a report in the UK Times that Brexit negotiators were close to a breakthrough in the issue of the Northern Ireland border. The issue is one of three main issues that need to be sorted out before a trade deal can be done. The two other issues are the UK’s divorce or exit bill, and the immigration rights of EU citizens. The British Pound has immediate resistance at 1.3540/50. Immediate support comes in at 1.3500 and 1.3480. The speculative community is basically square on Sterling. Likely range today 1.3490-1.3540.

GBP/USD 
USD/JPY – continues to trade on the back of the US Ten Year yield. The Dollar traded to an overnight high of 112.64 before inching higher to settle currently at 112.68. Immediate resistance can be found at 112.85 and then at 113.05. Japanese Core CPI, unemployment and overall household spending data are due today. Speculative JPY shorts are at
multi-year highs and this should limit the topside of USD/JPY. However, the momentum is higher for the Greenback in the short term. Likely range 112.40/112.90.

USD/JPY 
AUD/USD – slip- sliding away once again weighed by the weaker Kiwi and Canadian Dollar. A generally stronger US Dollar will keep the Aussie under pressure.
However, the strong support at or close to last week’s lows (near 0.7530) should hold. Australian and Chinese economic data were better than forecast yesterday. Today sees Australian New Home Sales for October as well as China’s Caixin Manufacturing PMI for November. AUD/USD has immediate resistance at 0.7600/10. Immediate support lies at 0.7550/60 (overnight low was 0.7555). Likely range today 0.7550/0.7600. At the end of the day, the general US Dollar direction will dictate where the Aussie goes. For now, trade the range.

AUD/USD

 

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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.

 

HIGH RISK WARNING:

Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.

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