Euro falling after the political volatility in Germany and gold going down to 1274 after touching the 1296 level
The Euro fell in choppy trading after coalition talks in Germany failed on a dispute over migration policy. The Dollar gained as US yields rose and tax legislation was postponed due to holiday this week. Janet Yellen tendered her resignation as Federal Reserve Chair effective upon the swearing in of her replacement, Jerome Powell.
There was little in the way of economic data yesterday. Germany’s October Producer prices rose 0.3%, slightly higher than the median forecast of 0.2%.
Global stocks rose led by Wall Street. The Dow finished up 0.36% (23,450).
US Treasury yields were higher. The yield on the US Ten year note rose 2 basis points to 2.36%. Germany’s Ten Year Bund yield finished flat at 0.36%. The US Two year bond yield climbed to 1.75%, up four basis points.
USD/DXY – gains 0.11% to 94.088 from 93.666 yesterday
EUR/USD – falls to 1.1732 at the close, down 0.45% (1.1788 yesterday).
USD/JPY – rallies on higher US yields to 112.70 close from 112.18 yesterday.
GBP/USD – mildly up to 1.3237 (1.3217 yesterday)
AUD/USD – slips to0.7547 from 0.7565 yesterday. RBA minutes of the most recent meeting released today.
Outlook: The Euro will dictate trading in this shortened week. Until Germany’s political situation is clarified, little will change. Germany’s attempt to form a coalition government failed as the pro-business Free Democratic Party walked out on talks. Merkel’s political future remains unclear. Germany’s President has urged the parties to return to negotiations. Merkel has said that she prefers fresh elections over forming a minority government. This poses a big uncertainty for the Euro Zone, a big EUR/USD negative.
Meantime US tax legislation has been postponed for the Thanksgiving holiday shortened week. This has provided respite and some support for the Dollar. Negotiations will begin next week. Markets are still uncertain that the tax bill will be passed before the year ends.
Events and economic data releases today:
Australia – RBA Monetary Policy Meeting Minutes: (GMT 12.30 am, Nov 21/Local Time 11.30 am, Nov 21) minutes from the RBA’s most recent monetary policy meeting (October) are released.
RBA Governor Philip Lowe speaks on Australia and the Global Economy at the Australian Business Economists Annual Dinner in Sydney: (GMT 9.05 am, Nov 21/Local Time 8.05 pm, Nov 21)
UK Public Sector Net Borrowing: (GMT 9.30 am, Nov 21/Local Time 8.30 pm, Nov 21) forecast: GBP 6.6 billion from GBP 5.3 billion
UK – BOE Inflation Report Hearings: (GMT 10 am, Nov 21/Local Time 9 pm, Nov 21)
Canada – October Wholesale Sales: (GMT 1.30 pm, Nov 21/Local Time 12.30 am, Nov 22) forecast: 0.6% from 0.5%
US Chicago October Fed National Activity Index: (GMT 1.30 pm, Nov 21/Local Time 12.30 am, Nov. 22) forecast: 0.2 from 0.17
US Existing Home Sales: (GMT 1 pm, Nov 22/Local Time 2 am, Nov 22) forecast: 5.42 million from 5.39 million
Trading View: The weaker Euro has enabled the Dollar Index (USD/DXY) to rally back above the 94 level, to 94.09. The Euro remains vulnerable to further falls until Germany’s political situation is clarified. US yields continue to climb, widening the differentials with that of its global peers including Germany. The speculative community remains long in Euro. The shortened week will keep volumes low and conditions choppy.
EUR/USD – rallied in early Europe to 1.18086 high before dropping. Early Europe initially shrugged off the news of Germany’s coalition collapse. Trading was choppy and the Euro fell to an overnight low of 1.1722. The Euro rallied to close at 1.1735 in New York. A break of 1.1720 will see 1.1680, which is strong support. Immediate resistance lies at 1.1750 and then 1.1780. The risk for the Euro remains lower. Likely range today 1.1680-1.1780. Look to sell rallies.
USD/JPY – gained as the US Ten year yield climbed back to 2.36%. The yield on the Ten Year Japanese JGB rose one basis point to 0.03%. USD/JPY traded to a high of 112.70 which is where it closed. Immediate resistance lies between 112.70 and 112.80. The next resistance level comes in at 113.00 and 113.20. Immediate support can be found at 112.30 and then at 112.00. Likely range 112.30-113.00.
AUD/USD – The Aussie continues to grind lower in the current environment. The RBA’s most recent meeting (October) minutes are released later on today. Governor Philip Lowe is due to deliver a speech to the Australian Business Economists Annual Dinner on the Australian and Global Economy. Both are important and will dictate the short term direction of Aussie trading.
AUD/USD has immediate support at 0.7530/40. Immediate resistance can be found at 0.7580 and then at 0.7600. Overnight high was 0.7574. Copper and other base metal prices rebounded yesterday in spite of the fall in Gold and Silver. Likely range today 0.7540-0.7590.
GBP/USD – Sterling traded mostly sideways yesterday mirroring the Euro moves. Efforts continue by the UK government toward agreeing on a Brexit “divorce” bill. GBP/USD has immediate resistance at 1.3250 and 1.3280. Overnight high was 1.3279. Immediate support for the British Pound lies at 1.3200 and then 1.3190. At the end of the day a weaker Europe will weigh on the UK and the Pound. Likely range 1.3180-1.3280.
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