Dollar regains some of its strength after positive economic data and gold is settling above the 1250 level
A strong rise in US November Retail Sales that beat expectations boosted the Dollar Index (USD/DXY) following its post-FOMC sell-off. The Euro ended lower after the ECB left rates unchanged and revised up its economic outlook. Mario Draghi reiterated that an ample degree of monetary stimulus is still needed.
US Weekly Jobless Claims fell to the lowest since March 1973.
Wall Street Stocks retreated on concern the Republican tax bill will struggle to pass the Senate. The S&P 500 fell 0.4% to 2,654.50 (2,670.50 yesterday).
The yield on the US Ten Year Treasury closed flat at 2.35%. Germany’s Ten Year Bund yield dropped one basis point to 0.30%.
Outlook: The Dollar Index (USD/DXY) managed mild gains, closing up 0.17% to 93.63. Much of this gain was due to the Euro’s 0.50% fall. The Dollar eased against the Yen, Aussie and Canadian Dollar. Emerging Market currencies finished mixed against the Greenback.
Trading View: While the strong US data boosted the Dollar, concerns over tax reform saw Wall Street decline.
In the central bank arena, the SNB, ECB and BOE all left rates unchanged. The ECB and BOE upgraded their economic forecasts.
For the ECB, inflation remains key. Mario Draghi said that underlying inflation does not warrant any policy change. In other words, rates will need to keep low for some time.
The Bank of England’s MPC vote to keep rates unchanged was unanimous (9-0).
The Aussie benefited from the robust gain in Australian jobs created for November. The strong bids at 0.75 cents encouraged buyers. Last night, there was a lack of sellers.
For now, every currency is writing its own script.
However, the strong rise in US retail sales significantly brightens the outlook for the US economy. This should feed into stronger wages and inflation. And eventually higher US yields and Dollar.
A quiet end to a busy week with not much on the data front today.
Japan reports it’s Tankan Manufacturing and non-manufacturing Index to start the day.
The US reports on it’s Empire State Manufacturing, Industrial Production and Capacity Utilisation data, all pretty second tier.
EUR/USD – rallied initially after the ECB left rates unchanged and upgraded its economic forecasts. EUR/USD traded to a high of 1.18625 before Mario Draghi’s comments pushed the Single Currency lower. The strong set of US data also kept a cap on the EUR/USD which closed down 0.5% to 1.1775. Immediate resistance can be found at 1.1800 and then 1.1830. Immediate support lies at 1.1770 and 1.1740. Since mid-November, the Euro’s wider range has been 1.1720-1.1960, and it’s difficult to see it outside of that just yet. However, with the speculative community still long of Euro bets, the downside is the risk. Likely range today 1.1750-1.1800. Look to sell rallies.
USD/JPY – slip-sliding away. The fall in US stocks due to concerns about the Republican tax bill having a difficult time to pass the Senate weighed on the USD/JPY. The US Ten year bond yield finished flat at 2.35%. We have highlighted that speculative JPY shorts are at multi-year highs. This becomes a bigger factor next week as liquidity will start to dry up. Japanese Manufacturing and Non-manufacturing Tankan Diffusion Index’s are due today. Both are expected to see a slight improvement. A much weaker Tankan report would see a strong USD/JPY rally. The Dollar slipped to close at 112.10 from 112.75 yesterday before settling at it’s current 112.35. USD/JPY has immediate support at 112.10 and 111.90. Immediate resistance lies at 112.50 and 112.70. Likely range today 112.10-112.70. Look to sell rallies.
AUD/USD – maintained it’s bid rallying to a high of 0.7680 before settling at 0.7660. The strong Australian employment gain and the overall weaker US Dollar lifted the Aussie. The Ten Year Australian bond yield climbed 3 basis points to 2.55%. The differential between the US Ten year yield widened to 20 basis points. When the Aussie was trading at 0.75 cents, and the differential was 14 basis points and the market was calling the Aussie lower. But the 0.75 cent level held well and we are now closer to 0.77 cents. AUD/USD has immediate resistance at 0.7680 and 0.7700, which should be strong. Immediate support can be found at 0.7650 and 0.7635. Speculative Aussie bets are still long. Look to sell rallies with today’s likely range 0.7640-0.7680.
GBP/USD – closed mildly higher to 1.3440 (1.3425 yesterday). Sterling rose even as the BOE kept it's rated unchanged. The MPC’s vote this time was unanimous at 9-0. The Bank of England also acknowledged that risks related to Brexit remain the biggest threat to the UK economy. And to the British Pound. GBP/USD has immediate resistance at 1.3460 and 1.3480. Immediate support lies at 1.3420 and then at 1.3400. Speculative GBP longs are relatively small. But they are still long. Likely range today 1.3400-1.3470. Look 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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