The Australian dollar is falling to its lowest level and the US dollar is trying to regain strength
The Australian Dollar was the biggest loser while the Japanese Yen the biggest winner as market sentiment turned risk-averse. A surprise rises in US retail sales and an uptick in core inflation saw the Dollar rally to end little-changed against the Major currencies. Metal prices fell amidst a weaker Chinese growth outlook. Treasuries rose, yields and stocks dropped.
Australian Q3 Wage Prices missed with a rise of 0.5% against a forecast of 0.7%.
UK Average Earnings rose to 2.2% against median expectations of 2.1%. UK Claimant Count Change, which is the number of people claiming unemployment benefits fell to 1,100 against a forecast 2,000. Britain’s Unemployment rate was unchanged at 4.3% (forecast 4.3%).
US October Headline CPI rose 0.1%, the same as forecast. Core CPI rose to 0.2%, as expected but higher than September’s 0.1% rise. US October Retail Sales grew 0.2%, beating estimates that had forecast no change. Empire State Manufacturing Index slipped to 19.4 against an expectation of 25.5.
Global equities extended their falls lead by Wall Street. The US S&P 500 was down 0.42%.
Treasuries climbed while yields dropped. The yield on the US Ten Year Bond slipped to 2.33% (2.38%). Germany’s Ten Year Bund yield was 2 basis points lower to 0.37%. Japanese yields were unchanged while the yield on the Australian Ten year Treasury dropped to 2.59% from 2.65%.
USD/DXY – flat finish at 93.801 (93.816 yesterday)
EUR/USD – little-changed to 1.1793 from 1.1796 yesterday
AUD/USD – ends at 0.7585 (0.7635 yesterday), fresh four months lows
USD/JPY – falls to 112.95 from 113.38 yesterday.
GBP/USD – slips to 1.3168 (1.3172), little-changed.
Outlook: The US Dollar managed a comeback after it took a beating yesterday following the release of the retail sales and inflation numbers. Treasury prices and stocks continued their slide as risk-off sentiment prevailed. The Euro rose to an overnight high of 1.1861 before settling just under the 1.1800 level. This saw the Dollar Index (USD/DXY) drop to its support level of 93.40 before rallying to close at 93.80, little-changed from yesterday.
Markets are skeptical that the US tax overhaul will be done and dusted before Christmas. This resulted in yesterday’s Dollar sell-off. We also highlighted that net short US Dollar bets were cut to their lowest in 4 months. Yesterday’s US inflation and retail sales data were mildly better. This is Dollar supportive overall. Against the Yen though, it’s a different story. Speculators increased net US Dollar longs/Yen shorts to the largest total since January 2014. Data out later on will have an impact.
Trading View: Continued improvement in US economic data has kept the Dollar supported. However, we would need to see progress on the passage of the tax bill from US lawmakers for further Dollar gains. The risk of sentiment has seen a bit of currency disconnect which should continue. The Australian Dollar needs a good set of Employment data to hold its current levels which are at four-month lows. The Dollar should remain soft against the Japanese Yen. Euro Zone October Final CPI figures are released later. And in the UK, BOE Mark Carney and other MPC colleagues are due to make speeches. We could be in for a busy day today.
Events and economic data releases today:
Australian Employment Change, Unemployment and Participation Rate: (GMT 12.30 am, Nov 16/Local Time 11.30 am, Nov 16): forecast for Employment Change: +17,800 from +19,800; forecast for Unemployment Rate: 5.5% from 5.5%; forecast for Participation Rate: 65.2% from 65.2%
UK October Retail Sales: (GMT 9.30 am, Nov 16, Local Time 8.30 pm, Nov 16) forecast (m/m): 0.1% from -0.8%; forecast (y/y): -0.6% from 1.2%
Euro Zone Final Headline and Core CPI (y/y): (GMT 10 am, Nov 16/Local Time 9 pm, Nov 16); forecast: 1.4% from 1.4%; forecast for Core CPI: 0.9% from 0.9%
Canada October Manufacturing Sales: (GMT 1.30 pm, Nov 16/Local Time 12.30 am, Nov 17) forecast: -0.4% from 1.6%
US Weekly Jobless Claims and Philadelphia Fed Manufacturing Index: (GMT 1.30 pm, Nov 16/Local Time 12.30 am, Nov 17) forecast for Jobless Claims: 235,000 from 239,000; forecast for Philadelphia Fed Manufacturing Index: 24.5 from 27.9
Bank of England Governor Mark Carney and MPC members Ben Broadbent, Jon Cunliffe, and David Ramsden speak on economics at various public schools in Liverpool, Britain: (GMT 2 pm, Nov 16/Local Time 1 am, Nov 17)
US October Capacity Utilisation Rate and Industrial Production: (GMT 2.15 pm, Nov 16/Local Time 1.15 am, Nov 17): forecast for Capacity Utilisation Rate: 76.3% from 76.0%; forecast for Industrial Production (m/m): 0.5% from 0.5%.
EUR/USD – traded to an overnight high of 1.1861 before sliding to close at 1.1795 after the release of US inflation and retail sales numbers. The Euro has immediate resistance at 1.1810 and then 1.1840. Immediate support lies at 1.1770 and 1.1750. Euro Zone October CPI data is due later with expectations pretty much the same as the previous months. Likely range today 1.1760-1.1810.
USD/JPY – slumped to 112.48 overnight, a one month low before rallying to 112.95 following the release of the US data. US Ten year yields fell 4 basis points while the Japanese Ten year JGB was unchanged. Risk aversion also weighed on USD/JPY. And net JPY short bets rose to their highest level since January 2014. This should keep the Dollar capped against the Yen. Immediate resistance can be found at 113.10. USD/JPY has immediate support at 112.70 and then 112.50. Likely range today 112.50-113.00. Look to sell rallies above 113.00
AUD/USD – slumped to a low of 0.7573 overnight before rallying to close at 0.7585. Weak third-quarter wage data pushed the Aussie lower from 0.7635. AUD/USD has immediate support at 0.7570 and then 0.7540. Immediate resistance can be found at 0.7610/20. Likely range until the data 0.7570-0.7610. Not a big seller of the Aussie down here.
GBP/USD – managed to rally to a high of 1.3214 overnight, mainly on US Dollar weakness. BOE Governor Mark Carney and a host of MPC members are speaking on economics to various schools in Liverpool later. The British Pound closed at 1.3168, little-changed from yesterday’s 1.3170. Sterling has immediate resistance at 1.3190/1.3200. There is immediate support at 1.3150 and 1.3130. Speculative Sterling bets turned to a small short from basically square. Brexit negotiations will remain a headwind for the Pound. Likely range today 1.3150-1.3200
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