Markets are quiet after the holiday waiting for the non-farm payrolls report on Friday
In thin holiday trade the Dollar Index (USD/DXY) accelerated its slide to end 2017 at three-month lows. The Euro broke through 1.20, rising to 1.2025 in the last hours of trading before slipping lower. A slightly higher than forecast rise in German Inflation for December boosted the Euro. China’s Official PMI data over the weekend was mixed.
The Dollar’s slide accelerated last week in thin holiday markets. This week is no different and markets won’t come into full participation until after Friday’s US Payrolls number. Before that, there are a bunch of global manufacturing data releases. Germany releases its December Employment report tomorrow.
Will the US Dollar be able to find some legs this week and manage to reverse some of its slides? This is unlikely in the short term as the weak Dollar sentiment remains strong and as trading is still thin this week.
A few things to note:
The negative sentiment that surrounds the Dollar as we begin 2018 is as strong as it was positive when we began 2017. Which didn’t last long.
European political issues that remained unresolved in 2017 will need resolving in 2018. Germany has yet to put together a government following its elections in late September.
In Spain, Catalonia’s new government takes office in the middle of this month.
Brexit negotiations were put on hold. The next discussions involve the terms of transition.
Italy’s political election in March this year is already attracting headlines. Polls are uncertain and a coalition government is possible.
Market positioning remains net short US Dollars. While there was a general trimming of short US Dollar bets, the net position remains short. The latest CFTC/Reuters report (week ended 26 December) saw further trimming of US Dollar shorts. The breakdown is interesting.
The Dollar Index (USD/DXY) broke through 92.50 to test 92.080 lows before rallying to settle at 92.30. Immediate support is now found at 92.00/10. Immediate resistance lies at 92.50, which was the previous support. The low for the USD/DXY was at 91.00 in early September. A break of 92.00 could see 91.00. We would need to break and trade above 92.50, to 93.00-20 to start a technical correction.
EUR/USD – rallied to an overnight high at 1.20255 before settling to close around 1.2000. The Euro appreciated just over 14% against the US Dollar in 2017, the strongest among the Majors. Traders continue to focus on the ECB’s shifting away from its ultra-accommodative policy in 2018.
EUR/USD has immediate resistance at 1.2025 (overnight high). The strong resistance level for EUR/USD lies at 1.2090 which was high in early September. Immediate support lies at 1.1970 and then at 1.1950. Today’s likely range 1.1985-1.2025. Look to sell rallies.
USD/JPY – slipped to 112.67 from 112.90 on Friday, opening at 112.60 this morning. The latest CFTC/Reuters report saw an increase in net short JPY bets too -JPY 116,086 (from -JPY 114,393).
USD/JPY has immediate resistance at 112.85 and then 113.00. Immediate support can be found at 112.50 (overnight low was 112.472). Further support lies at 112.20. If one were bearish on the US Dollar, this would be the ideal currency pair to sell given its current market positioning.
In the last weeks of December, we saw improving Japanese inflation, consumption as well as industrial production data. This morning’s headline has seen a more conciliatory approach toward South Korea by North Korean leader Kim Jong Un in his New Year speech. While this is welcome news from all the political turmoil caused last year, a lasting resolution is far away. Likely range today 112.40-112.90. Prefer to sell USD/JPY rallies.
GBP/USD – The Pound slowly crept its way higher in thin volumes the last trading days of 2017. US Dollar weakness has seen a Sterling performance in the British Pound. GBP/USD has immediate and strong resistance at 1.3540. A break above 1.3540 could see us up at the 1.3600/50 area. Immediate support can be found at 1.3480, followed by 1.3450. Brexit negotiations move into the next crucial phase of the transition. Likely range today 1.3485-1.3535. Look to sell rallies above 1.3520.
AUD/USD – traded up to 0.7825 before settling a touch lower at 0.7805 as metals retreated on Friday. Copper prices eased on the last trading day of 2017 after its strong rally. The Aussie rallied 3.2% in December after falling to a low of 0.75 cents where strong support emerged. The differential between US and Australian Ten year yields narrowed while industrial metals soared. AUD/USD has immediate resistance at 0.7820. Strong resistance is at 0.7840/50. Immediate support can be found at 0.7780 and 0.7760. Strong support lies at 0.7720. China reports it’s Caixin Manufacturing data, later on, today and unless it’s way outside expectations we can expect a likely range of 0.7780-0.7820. Prefer to sell rallies to 0.7520.
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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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