Euro is on its way to record highs and the Dollar continues to fall on fears of continued low inflation
A measure of German business confidence beat expectations, rising to a record high in November. German IFO Business Index climbed to 117.5 from 116.8, enabling the Euro to hit its highest against the Dollar in two months. The Dollar Index (USD/DXY) fell to its lowest since September 26. The Euro makes up almost 60% of the dollar index. Against the Yen, the Dollar edged higher after testing two months lows last week. Sterling ended little-changed while the Aussie slipped against the Greenback. Trading was light with a reduced schedule for US markets on Friday.
Germany’s November IFO Business Climate rose to 117.5, beating expectations of 116.6 and a previous 116.8.
In lower tier data, US Flash Manufacturing and Services PMI data both missed expectations. Flash manufacturing PMI slipped to 53.8 against forecasts of 55.1. Services PMI was lower at 54.7 against expectations of 5.5.
Wall Street stocks rose in abbreviated trading Friday. The US S&P 500 closed up 0.17% at 2602.20.
The yield on the US Ten Year Treasury was up two basis points to 2.34%. Germany’s Ten Year Bund yield closed up at 0.36% from 0.34%.
USD/DXY – falls to close at 92.756 (93.126 Friday)
EUR/USD – extends gains to 1.1930 (1.1850), up 0.67%.
USD/JPY – small rise to 111.52 from 111.25 on Friday.
GBP/USD – little-changed to 1.3300 (1.3305 Friday)
AUD/USD – slips to 0.7612 from 0.7625.
Outlook: The US Dollar has gradually lost ground against its Rivals after moving higher in September and October. Last week it was the Yen and then the Euro that pushed the Greenback lower. The release of the Federal Reserve FOMC meeting minutes revealed that US policy makers are concerned about stubbornly low inflation. Many now doubt how many times the Fed will increase interest rates in 2018. Meantime Germany continues to show positive economic readings while the political situation got a lift on news that the Social Democrats were open to negotiating with Angela Merkel’s party.
The week ahead will see some first tier data that will drive the markets. Tuesday sees the UK’s Financial Stability Report.
US Consumer Confidence is released on Wednesday as well as the RBNZ’s New Zealand Financial Stability Report. OPEC members convene in Vienna later on in the week. Euro-Zone Business Climate, Economic Sentiment Indicator and other related data are due Wednesday.
Thursday sees US Q3 Core PCE, an important inflation indicator and crucial considering Fed official’s concern of stubbornly low inflation. German unemployment and Euro Zone are also due on Thursday. Australia releases it’s Capex and Building Approvals data on Thursday.
Friday finishes the week with Japanese CPI and Employment data as well as US November ISM Manufacturing PMI’s.
Events and economic data releases are light today.
Euro Zone Economic Stability Review: (GMT 9 am, Nov 27/Local Time 8 pm, Nov 27) – published by the ECB twice a year and gives a picture of financial stability in the Euro area.
US October New Home Sales: (GMT 3 pm, Nov 27/Local Time 2 am, Nov 28) forecast: 627 million from 667 million
Trading View: Expect a tentative start today to the week with an offered tone to the Dollar. The Euro will continue to lead the currencies against the Greenback. The US tax legislation resumes this week and a heavy agenda could lead to disappointments. While the markets have shrugged off Germany’s political situation, developments will continue to be in focus this week.
The Dollar Index (USD/DXY) traded to a September 26 low of 92.675 before settling to close at 92.756. Immediate support for USD/DXY lies at 92.65 and 92.50. Immediate resistance can be found at 93.00 and 93.10.
EUR/USD – traded to an overnight high of 1.1944 before settling lower to 1.1930 at the New York close. Immediate resistance lies at 1.1940/50. This should hold today. The next resistance level is 1.1980 and the 1.2000/10. Immediate support can be found at 1.1900 and then 1.1885. For the Euro to build on its upward momentum we would need to hold above the 1.1880/85 level. It would be ideal to take a look at the speculative community in the latest week once the report is out tomorrow. Likely range today 1.1910-50.
USD/JPY – While the Dollar managed to rally against the Yen, it remains anchored near its two-month lows seen last week. The Bank of Japan’s exit policy is this week which will draw increasing interest. Given the Dollar’s abrupt move lower against the Yen last week, it is unlikely that BOJ Governor Haruhiko Kuroda will suggest any immediate tightening. Policy makers realise that their comments will be important for the JPY in the near term. And Japan Inc will always err on comments that will calm the FX markets. Immediate resistance for USD/JPY lies at 111.60/70 (overnight high 111.62). There is immediate support found at 111.30 and then 111.10 (low last week was 111.07. Likely range today 111.35-111.75.
AUD/USD – The Aussie rallied off it’s low at 0.7532 last week, lifted by overall US Dollar weakness. Metals prices also stayed firm last week. The Aussie traded to a high of 0.7632 on Friday before settling to 0.7613 at the close. AUD/USD has immediate resistance at the 0.7630/40 area. Immediate support lies at 0.7600 and then 0.7585. The Australian Dollar has lagged behind the other currencies in their climb against the Greenback. Its yield advantage over the US Dollar has continued to erode. On September 26 the Ten Year Aussie bond yield was at 2.80% against the US Ten Year of 2.22, giving the Aussie a 0.58% advantage. On Friday the Aussie’s Ten-year yield gap narrowed to 0.16%. Australian Ten-year bond yield closed at 2.50% against 2.34% for it’s US counterpart. Likely range today 0.7590-0.7630.
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