The dollar keeps its gains awaiting the non-farm payrolls report on Friday
The Dollar Index (USD/DXY) maintained its bid tone as two of its main Rivals fell. The Euro edged lower due to a lack of buying support and breaking an up trend that began in November. Sterling’s slide extended on growing concerns on the latest Brexit negotiation deadlock. The Australian Dollar closed little-changed after rallying initially on stronger retail sales data and a slightly upbeat RBA.
Australian November Retail Sales rose 0.5%, exceeding expectations of a 0.3% rise. October’s retail sales number was revised up to 0.1% from 0.0%.
China’s Caixin Manufacturing PMI climbed to 51.9 from the previous 51.2 and a forecast of 51.5
Euro Zone Final Services PMI came in at 56.2, the same as that of median expectations
UK Services PMI missed at 53.8 against a forecast of 55.2
The US Trade Deficit widened in November to -USD 48.7 billion against a forecast deficit of -USD 46.2 billion. October’s trade deficit was revised up to -USD 44.9 billion from -USD 43.5 billion.
US ISM Non-Manufacturing PMI fell to 57.4, lower than forecasts of 59.2.
Stocks fell while Treasury prices rallied. The US Dow fell 0.4%. The S&P 500 closed down 0.3% at 2,632 (2,648 yesterday).
The yield on the US Ten Year Treasury fell 2 basis points to 2.36%. Germany’s Ten Year Bund yield dropped to 0.32% from 0.34%. The yield on Australia’s Ten Year Bond rose 6 basis points to 2.60% following the RBA meeting.
USD/DXY – up to 93.383 at the close (93.168)
EUR/USD – edges lower to 1.1813 from 1.1860 yesterday
GBP/USD – extends slide to close at 1.3436 (1.3475 yesterday)
AUD/USD – ends little-changed at 0.7607 (0.7598)
USD/JPY – closes flat at 112.65 (112.65)
USD/CAD – mild gains to 1.2696 from 1.2705 yesterday. Bank of Canada holds it's interesting rate policy meeting today
Outlook: The Dollar’s gains were mainly at the expense of the Euro and Pound. Against its other Rivals, the Green back was little-changed. Traders are still focused on the progress of surrounding US tax reform where the reconciliation process between the Senate and House of Representatives is beginning. If all remains quiet on the political front, Friday’s US Payrolls numbers are key to the FOMC’s rate decision meeting in the following week. We are also now into the December month, where volumes will start to thin as the holiday’s approach. Market positioning will matter.
Events and economic data due today:
Australia Q 3 GDP: (GMT 12.30 am, Dec 6/Local Time 11.30 am, Dec 6) forecast for (q/q): 0.7% from 0.8%; forecast for (y/y): 3.0% from 1.8%
ECB Non-monetary policy meeting: (GMT 8 am, Dec 6/Local Time 7 pm, Dec 6)
US ADP Employment Change: (GMT 1.15 pm, Dec 6/Local Time 12.15 am, Dec 7): forecast: 185,000 from 235,000
US Q 3 Unit Labour Costs and Non-Farm Productivity: (GMT 1.30 pm, Dec 6/Local Time 12.30 am, Dec 7) forecast for Unit Labour costs: 0.2% from 0.5%; forecast for Non-farm productivity: 3.3% from 3.0%
Bank Of Canada Interest Rate Decision and Rate Statement: (GMT 3 pm, Dec 6/Local Time 2 am, Dec 7): The Bank of Canada is expected to keep its Overnight Rate unchanged at 1.00%
Trading View: Traders will keep their focus on the headline events which have dominated trading. Expect consolidation at current levels with the Dollar maintaining its overall bid tone. While global yields were lower, short-term US rates pushed higher and this supported the Dollar’s climb. The two-year US treasury yield continued its gains, closing up at 1.82% (1.81% yesterday). There is also plenty of optimism around the passing of the tax bill by the Senate.
Friday’s Payrolls data could be a game changer coming just ahead of the FOMC meeting next week. While November’s employment change is expected to slow to around +200,000 (from October’s 261,000 gain), wages are forecast to rise. Average Hourly Earnings (which is the gauge used for wages) are expected to rise to 0.3% from the previous 0.0%.
The Dollar Index (USD/DXY) traded to a high of 93.488, just shy of 93.50 resistance level. USD/DXY closed at 93.388. Immediate support now lies at 93.10/20 and 93.00. Immediate resistance is at 93.50 which remains strong. A break of 93.50 could see us back up to 94.00.
EUR/USD – edged down throughout the day to trade to a low of 1.18008, settling to close at 1.1818. The Euro failed to break up through the resistance of 1.1880 which now remains key. Immediate support lies at 1.1800 where good buying support emerged before. As we head well into December markets, volumes will thin and positioning will have a bigger impact. Likely range 1.1800-1.1850. Look to sell rallies.
GBP/USD – slip-sliding away. Sterling extended its losses as pessimism grows following a no deal on Brexit negotiations. The issue of the Irish border kept talks from progressing further. Northern Ireland’s Democratic Unionist Party (DUP), who are currently propping up the May government, refuse to make any deal with the European Union that is different from the rest of the UK. This is where the talks broke down. GBP/USD has immediate support at 1.3400 and then 1.3380 (overnight low was 1.33710). Immediate resistance can be found at 1.3450 and then 1.3480. Likely range today 1.3380-1.3480.
AUD/USD – The Aussie fell from its highs following a slightly more upbeat RBA after they left interest rates unchanged. AUD/USD rose to a high of 0.76539 before slipping to close at 0.7607. Copper prices slumped 3% overnight, leading industrial metals lower. The RBA said it will keep its policy neutral in the foreseeable future. The Australian central bank noted jobs growth and omitted reference low inflation “for some time” in its statement. The yield on the Australian Ten year bond jumped 6 basis points yesterday. AUD/USD has immediate resistance at 0.7630 and 0.7650. Immediate support can be found at 0.7600 and then 0.7580. Likely range 0.7585-0.7635. Trade the range between 0.7540-0.7660 for now.
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