Dollar recovering from the positive economic data and FOMC, Waiting for NFP report tomorrow
A slightly hawkish Fed and upbeat US ISM manufacturing data managed to halt the Dollar’s slide which began this week. Most Fed officials reiterated their support for “continuing a gradual approach to raising the target range” for the benchmark policy rate. The consensus is for three rate hikes this year. The Euro and Sterling pulled back from recent highs enabling the Dollar Index (USD/DXY) to stabilize.
Walls Street stocks climbed to fresh record highs. The S&P 500 finished up 0.6% at 2,710.00 (2,690.00).
Global yields were mostly lower. The benchmark Ten Year US Treasury yield closed down one basis point to 2.45%. Germany’s Ten Year Bund Yield was down to 0.43% from 0.46% yesterday.
Outlook: Fed minutes revealed that officials debated between the outlook for lower inflation and expectations of robust growth that was to get a further boost from tax cuts. The strong US economy should eventually see inflation come back. Last night’s data release supports.
Economic activity in the US manufacturing sector expanded in December with the ISM report beating forecasts. The Manufacturing Prices Paid component (which is more inflationary) also beat forecasts. US November Construction Spending also beat estimates.
Trading View: The US Dollar is down but not yet out. While the reaction to the Fed meeting minutes was muted, it has provided the Dollar with some respite. Markets continue to see an impressive run of US economic data which are beating forecasts.
A few things to note:
There was little data out of Europe yesterday. Germany’s Jobless rate improved. We would need to see a combination of US data beating expectations and a few European data misses to start a US Dollar turnaround.
Politics remains negative for the US Dollar at the moment. That’s because there has been an absence of political news out of Europe. This will change as we end the week.
Today sees European and Euro Zone Services PMI data. China’s December Caixin Services PMI is also due out.
The Euro and Sterling failed to break new highs with the overnight highs lower. Technically lower highs often result in a reversal. The overnight high for the Australian Dollar was exactly the same as the previous day. That said, metal prices continue to correct their recent steep rises.
Gold and Silver reversed their gains last night. Both precious metals slipped 0.58% and may have hit their tops. The inverse relationship between Gold and the US Dollar may see further Greenback rally.
The net total of the speculative community is still short US Dollar bets.
USD/DXY – The Dollar Index closed up 0.33% at 92.166 (91.843 yesterday). It traded to an overnight low of 91.805. A base has been formed between 91.75/80 which is strong and should hold. Further support is found at 91.50 while immediate support lies at 92.00. Immediate resistance lies at 92.40/50. Further resistance can be found at 92.80 and 93.00. Look to buy dips today with the likely range 92.00/40.
EUR/USD – slipped 037% to close at 1.2015 (1.2052 yesterday). Last night’s high was 1.20662, lower than the previous session’s high of 1.20813. Immediate support can be found at 1.2000 followed by 1.1960. Further support lies at 1.1930. Immediate resistance on the day is at 1.2030, then 1.2060 and 1.2080. Last night’s price action and rejection at the highs could see a further correction down. The higher number of net speculative Euro long bets will also weigh on the Euro. Likely range today 1.1980-1.2030. Sell rallies.
GBP/USD – reversed its gains after a brief moment in the sun. The Pound remains vulnerable and a stronger US Dollar will see further pressure on Sterling. GBP/USD closed down 0.6% at 1.3517 last night after failure to break above 1.3600. Immediate support for Sterling lies at 1.3500 and then 1.3480. Immediate resistance can be found at 1.3520 and then at 1.3540. Recent UK economic data has missed expectations. Brexit negotiations are due to resume next week. UK Ten Year Gilt yields dropped 8 basis points to 1.21%. The US Ten year yield was one basis point. And the speculative community has turned from net short to net long Sterling bets. Likely range today 1.3480-1.3530. Look to sell rallies.
AUD/USD – closed at 0.7832, little-changed from yesterday’s 0.7834. Overnight high for the Aussie was at 0.78448, exactly the same as the previous session. Metal prices continued to correct their recent steep increases. Copper prices slipped for the second day running. Iron Ore was also lower. AUD/USD has immediate resistance at 0.7850 and then 0.7870. Immediate support can be found at 0.7815 and then 0.7805. Further support lies at 0.7790. China releases it’s Caixin Services PMI data for December. Likely range 0.7790-0.7840. Look to sell rallies.
USD/JPY – settled slightly higher at 112.50 (112.28 yesterday). The US Ten Year yield was one basis point lower which Japan’s Ten Year JGB yield was unchanged. This should keep the USD/JPY within a range with immediate resistance at 112.60 (overnight high 112.608). Immediate support can be found at 112.20. Japan returns from it’s New Year holiday break today. Net speculative JPY short bets remain at multi-year highs. Likely range 112.20-112.70. Prefer to sell rallies.
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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.
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