Positive economic data in the US could not save the dollar waiting for the results of the non-farm payrolls report today
A stronger-than-expected rise in US ADP private sector jobs report lifted risk appetite but failed to subdue Dollar bears. Services PMI data out of Europe mostly beat expectations. As the global growth outlook gained traction, the Dollar resumed its slide against its Rivals apart from the Yen. The Euro reached its highest level in almost four months. The Kiwi outperformed, closing at its highest in nearly 3 months.
Wall Street stocks hit fresh record highs. The Dow finished above 25,000. for the first time.
Outlook: The upbeat US ADP Private Sector jobs report will lead to higher expectations in tonight’s Payrolls report. This followed a slightly hawkish Fed and robust US manufacturing data that beat expectations. Yet the market was unwilling to push the Dollar higher. Instead, the bears regained control and resumed selling. The Dollar Index (USD/DXY) dropped to close near Tuesday’s low at 91.854 (91.843).
Trading View: The gain in the global growth outlook has led to a surge in risk appetite. This has led to rallies in the Aussie, Kiwi and Loonie. The Euro has also benefited, rising to its highs in 2017. The Single Currency takes almost 60% of the weight in the Dollar Index (USD/DXY), which has dropped to 3-month lows. The outlier is the Japanese Yen, which weakens in a risk-on scenario.
The integration of global growth has fuelled trader’s expectations that the ECB will lead other central banks on a tightening path. Which has led to overall Dollar weakness.
A few things to note:
Trading volumes are still not yet at full capacity this week. While the Dollar is soft, it’s premature to call a full-fledged Greenback demise.
Politics in Europe has been thrown out of the window and the market doesn’t seem to care. Let’s not forget. Germany still does not have a government. Italy faces a crucial election in a few months time. And Brexit discussions are still a long way from being resolved. For now. It seems like no news is good news.
While stocks surged, Treasuries were steady and there was little movement in yields. US Two-year yields rose 3 basis points to 1.96%. Germany’s two-year yield rose 1 basis point to -0.62%. I had a look at the charts of both yields and they are not narrowing, they are widening. Yield differentials still matter in the FX markets.
And at the risk of sounding like a broken record, market positioning also matters. The speculative community is still net short of US Dollars.
US Payrolls and wages are the main data out later. Australia releases it’s trade data for December. Euro Zone Flash CPI Estimates (annual) are also released as well as Canadian employment.
EUR/USD – traded to 1.20891, near four-month highs before settling at 1.2065 currently. The Euro held the above the 1.20 level and slowly ground it’s way back higher. Services PMI in the Euro Zone beat expectations. EUR/USD has immediate resistance at 1.2090 and 1.2100. Immediate support can be found at 1.2050, 1.2020 and then 1.2000. A clean break above 1.2100 (which are highs not seen since Jan 2015) could see us back to 1.22 and 1.24. A break below 1.1980 would yield 1.1880. Likely range ahead of Payrolls 1.2030-1.2080. Let’s not forget that net speculative Euro longs are at multi-year highs. Sell rallies.
USD/JPY – the outlier amongst the currencies and weakened slightly to close at 112.77 (112.51 yesterday). The yield on the US Ten year bond was unchanged at 2.45%. Japan’s Ten Year JGB yield closed at 0.05%. USD/JPY has immediate resistance at 112.90/113.00. Further resistance can be found at 113.15. Immediate support lies at 112.50 and then 112.20. Likely range until the Jobs number 112.40-112.90. Prefer to sell rallies as speculators are still pretty short of JPY bets.
AUD/USD – While copper and other base metals eased further, the Aussie climbed as risk appetite grew. The surge in the Kiwi also supported its bigger cousin. AUD/USD closed at 0.7865 which isn’t far from the overnight high of 0.7868. While the Aussie remains bid, let’s remember that just a little over three weeks ago we were languishing at 0.75 cents and looking offering. Today it looks bid near 0.79 cents. One of the things I learned as an Aussie trader was that the Aussie always looked most offered near its low and most bid near it’s high. Yesterday the Australian ten-year bond yield slipped 3 basis points to 2.68%. AUD/USD has immediate resistance at 0.7880/90 and then at 0.7910. Immediate support can be found at 0.7850 and 0.7820. Likely range today 0.7840-80. Look to sell rallies.
NZD/USD – The Kiwi outperformed yesterday, climbing almost 1% to trade to 0.7166, highs not seen since mid-October. Which was when the Kiwi election happened. A combination of stronger risk appetite and a generally weaker US Dollar supported the New Zealand Dollar. The latest CFTC/Reuters report (week ended 26 December) saw a rise in short net Kiwi bets to -NZD 17,586 contracts from -NZD 16,619 the previous week. This was the largest number of speculative shorts in 4 years. The Kiwi has had a remarkable rise in 3 weeks. NZD/USD has immediate resistance at 0.7170 and then 0.7200. Immediate support lies at 0.7130/40 and then 0.7100. Let’s not forget that the Kiwi elections resulted in a Labour win and a coalition government. Likely range 0.7130-0.7180.
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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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