GBP/USD jumped 30 pips to a fresh session high of 1.3380 after the UK Office for National Statistics data reported November CPI at 3.1 percent y/y; the highest level since March 2012. Markets were expecting CPI to print at 3 percent.
Meanwhile, the core CPI came in at 2.7 percent y/y as expected.
As of writing, the spot is trading at 1.3373. The Pound may remain well bid as the 10-year US-UK yield spread has narrowed slightly in the GBP-positive manner. The spread now stands at 116.4 bps vs. pre-data level of 117.1 bps. The spread had widened to 118 bps yesterday; its highest level since Aug. 15.
Still, the gains could be capped around the 5-day MA of 1.3391 as Brexit uncertainty could force the BoE to go slow with policy tightening. Further, the USD may find takers ahead of tomorrow's FOMC rate decision.
GBP/USD Technical Outlook
Haresh Menghani, Editor and Analyst at FXStreet writes, "technically, the pair might now be eyeing for a bullish break through a short-term descending trend-line resistance near the 1.3535 region, above which the upward trajectory is likely to accelerate towards the 1.3600 handle en-route post-Brexit swing high resistance near the 1.3655-60 region, touched in September.
Alternatively, any profit-taking might now find immediate support near the 1.3480 region, which if broken could drag the pair back towards 1.3430-25 area en-route the 1.3385 strong support. A convincing break below the mentioned support levels might now negate any near-term bullish bias and turn the pair vulnerable to head back towards retesting the 1.3320 support area ahead of the 1.3300 handle."
The UK Office for National Statistics (ONS) revealed on Tuesday that consumer prices unexpectedly rose during November, with the headline CPI ticking higher to 3.1% y-o-y.
The print was slight above consensus estimates, pointing to a reading of 3.0%, and remained far from showing any signs of a deceleration in inflationary pressures.
On monthly basis, the UK inflation also edged higher by 0.3% as compared to a 0.1% rise reported in the previous month and slightly above 0.2% expected.
Meanwhile, the core inflation gauge matched consensus estimates and stood at 2.7% y-o-y in November.
Analysts at ING suggest that investment has been a surprise engine of growth for the Eurozone in 2017, as broadening innovations are helping to foster a structural transition in the economy.
“Market analysts can (at times) be guilty of overlooking the significance of such structural shifts, often failing to make the connection between these changes and long-run variables – such as the equilibrium interest rate. In fact, the move higher in EUR/USD since summer 2017 can to some degree be attributed to this relative structural adjustment in the EZ economy.”
“The convergence in EZ and US neutral interest rate estimates (r*) captures this conceptually; this gap has narrowed by 45bps since 4Q16, and currently stands at 19bps (according to Holston-Laubach-Williams data). Given that this suggests that there’s not a lot of difference between terminal policy rates in the US and EZ now, it’s no surprise to us that EUR/$ – albeit with a lag – has snapped back higher in 2H17. And with the ECB’s monetary normalisation cycle in its infant stages (relative to the Fed’s), we believe that such structural re-pricing in markets still has some legs to run. EZ investment data will be worth keeping an eye on – with today’s German ZEW survey a good starting place.”
The Indian economy accelerated in the September quarter, recording a 6.3% yoy expansion and was the first increase in the growth rate following 5 consecutive quarters of deceleration, explains the research team at NAB.
“NAB Economics is forecasting a 6.4% GDP growth rate in 2017, followed by a 7.1% expansion in 2018. In the December meeting, the RBI held the Repo rate at 6%– as expected. NAB is forecasting the Repo rate to remain on hold at 6%.”
Swedish CPIF inflation came out at 2.0%, above consensus, on the back of increases in fuel and imported goods, notes Jonas Goltermann, Economist at ING.
“After two months of downside surprises, Swedish inflation today came out above consensus. Fuel, electricity, and clothing increased in November relative to October, as higher oil prices feed through to domestic prices. The main reason for the upside surprise however is the transport component, which has been erratic all year after changes to the way the Swedish statistics authority measures package holidays. In effect, today's upisde surprise off-sets the misses in September and October.”
“For the Riksbank today's data will not make a huge difference to its policy decision next week. The central bank has been saying all along that it doesn't place much weight on month to month volatility caused by measurement issues. The policy committee will be pleased with the confirmation that inflation is back to target, but we think the dovish majority will want to keep policy accomodative for some time yet to avoid the risk that inflation falls back again.”
Comments by German Federal Ministry for Economic Affairs and Energy are crossing the wires via LiveSquawk & ForexLive-
According to Karen Jones, Analyst at Commerzbank, the EUR/JPY cross is bid in its range and looks set to retest the recent high 134.50/58.
"this is the high from November 2015 and also a double Fibonacci retracement. This level is key short to medium term - a close above here will introduce scope for a test of the 2008-2017 resistance line at 140.46/141.06. Currently it remains in the middle of its recent range."
"Only a close below the 131.16 recent low and the 130.81 support line will confirm that the market has topped."
Nobel prize-winning economist Joseph Stiglitz, while speaking to Bloomberg TV said, the US tax bill is the worst he has ever seen.
• Moves above 50-DMA for the first time since Oct. 19.
• Softer USD/bond yields help build on overnight strong gains.
• US PPI print to provide some impetus ahead of Wednesday’s key event risk.
The NZD/USD pair continued gaining positive traction for the third consecutive session and jumped to over 4-week tops during the early European session on Tuesday.
A modest US Dollar retracement, backed by a subdued US Treasury bond yields helped the pair to build on previous session's strong up-move led by the appointment of Adrian Orr as the next RBNZ chief from March.
The pair rose to mid-0.6900s, its highest level since Nov. 10, and today's up-move could also be attributed to some technical buying, especially after a decisive move beyond 0.6925-30 supply zone.
The pair has now moved above 50-day SMA for the first time since Oct. 19, with a follow through up-move, supported by additional short-covering, now looking a distinct possibility.
On the economic data front, the US PPI print would now be looked upon for some fresh trading impetus later during the NA session. The key focus, however, would remain on Wednesday's US consumer inflation figures, which along with the highly-anticipated FOMC decision would help investors determine the pair's next leg of directional move.
Technical levels to watch
Immediate resistance is now pegged near the 0.6975-80 region (early Nov. highs), above which the pair seems more likely to move past the key 0.70 psychological mark and dart towards its next major hurdle near the 0.7055-60 region.
On the flip side, 0.6925 level now becomes an immediate support to defend, which if broken could drag the pair back below the 0.6900 handle towards 0.6880 horizontal support en-route mid-0.6800s.
UK November CPI overview
The cost of living in the UK as represented by the consumer price index (CPI) is due at 9:30 GMT. The CPI inflation is expected to rise 0.2% m/m in November with the annual increase remaining at 3.0% y/y. The core inflation rate that excludes volatile food and energy items is also expected to remain at the unchanged rate of 2.7% in November.
Deviation impact on GBP/USD
Readers can find FX Street's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 15 and 75 pips in deviations up to 2 to -3, although in some cases, if notable enough, a deviation can fuel movements of up to 120 pips.
How could it affect GBP/USD?
According to Viraj Patel, Research Analyst at ING says positive surprises over the coming months – or signs of inflationary persistence – would alter the Bank's growth-inflation trade-off in favor of further tightening. In this scenario, calls for a second rate hike in May-18 could gain traction – and this hawkish front-end re-pricing in the UK curve is what we see as the catalyst to take GBP/$ beyond 1.36 at the turn of the year.”
Meanwhile, a big miss on the inflation would add credence to the bearish GBP/USD technicals and may open doors for a drop to 50-day MA level of 1.3245.
About UK CPI
The Consumer Price Index released by the Office for National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).
UK CPI inflation is expected to come in at 3.0% YoY today – and just within the +/-1% tolerable band around the 2.0% target – meaning that Governor Carney won't be required to attach an additional letter to the Xmas card that he will be sending the Chancellor this month, according to Viraj Patel, Research Analyst at ING.
“The consensus is that inflation is set to peak and slowly return back towards 2.0% as the post-Brexit GBP depreciation shock wares away. However, any positive surprises over the coming months – or signs of inflationary persistence – would alter the Bank's growth-inflation trade-off in favour of further tightening. In this scenario, calls for a second rate hike in May-18 could gain traction – and this hawkish front-end re-pricing in the UK curve is what we see as the catalyst to take GBP/$ beyond 1.36 at the turn of the year.”
Karen Jones, Analyst at Commerzbank notes that despite its recent slide, the EUR/GBP cross has recovered from and not registered a weekly close below the 55 week moving average.
"It has sold off on Friday to the 61.8% retracement of the move seen this year at .8697, the strong rebound from here suggests it is reluctant to head lower at this juncture and we would allow for a rebound. A close below here targets the .8530/78.6% retracement of the move seen this year."
"Near term rallies should find decent resistance at .8871 55 day ma and then the .8933 resistance line."
Gold's recovery from the low of $1240 has run of out of steam near the 1-hour 50-MA despite flat action in the dollar index.
As of writing, the yellow metal is at $1243 levels; down 0.20 percent on the day.
The metal has been steadily losing altitude since late November, which indicates the markets may have priced-in the Fed rate hike. Consequently, gold may regain the bid tone following the rate hike announcement (buy the fact).
However, a hawkish dot chart (interest rate forecast) could yield another leg lower in the yellow metal. As for today, the US Nov. producer price index (PPI) may not have a big impact on the yields and gold.
Gold Technical Levels
Adam Button from AshrafLaidi.com writes, "technically, the trend is increasingly weak. Last week, gold broke below the October low of $1260 and slid another $12 to $1240 on Monday. The July low of $1200 is a major support level that needs to hold if gold is going to rebound in the months ahead. If not, it could get ugly for the old-fashioned analog store of value.
• Softer USD/positive oil prices prompt fresh selling.
• US PPI print eyed for fresh trading impetus.
The USD/CAD pair continued with its struggle to gain any strong follow through traction beyond mid-1.2800s and came under some fresh selling pressure on Tuesday.
Currently trading around the 1.2835 region, the pair is now just a few pips away from previous session's low and was being weighed down by a mildly softer tone around the US Dollar.
Meanwhile, the prevalent bullish sentiment around oil markets, with WTI crude oil holding comfortably above the $58.00/barrel mark, underpinned the commodity-linked currency - Loonie and further collaborated to the pair's retracement through the early European session on Tuesday.
It, however, remains to be seen if the pair is able to break through its three-day old trading range as investors might now refrain from placing aggressive bets ahead of the highly anticipated FOMC announcement on Wednesday.
In the meantime, oil price-dynamics, along with today's release of US PPI print would be looked upon to grab some short-term trading opportunities.
Technical levels to watch
A follow through weakness below 1.2830 level is likely to get extended towards the 1.2800 handle, below which the pair is likely to accelerate the fall towards 1.2765 horizontal support. On the upside, sustained move beyond mid-1.2800s now seems to lift the pair back towards the 1.2900 handle en-route 1.2915-20 supply zone.
In the UK, November inflation data is due to be released today and is going to be the key economic release for today’s session, according to analysts at Danske Bank.
“Headline inflation surged to 3.0% in October, but with the GBP depreciation pace abating there is a good chance that the November print will mark the start of a deceleration in inflationary pressures and we estimate core inflation remained stable at 2.7%.”
“German ZEW expectations for December are also due out this morning. Consensus is for a small decline from the current level of 18.7, due possibly to the recent heightened political uncertainty about the German government formation process.”
The annual rate of CPI inflation held unchanged at 3.0% in October, failing to match expectations of a rise into letter-writing territory, points out the research team at Lloyds Bank.
“For November, while higher energy and food prices point to upside risks, some signs of easing in goods price inflation should largely provide an offset. On balance, we expect headline CPI inflation to be unchanged at 3.0%. However, with the RPI measure expected to reflect the impact of the November rate rise, we forecast the annual rate of RPI inflation picking up to 4.1%. Over the coming months, we expect only a very gradual easing in the pace of inflation.”
Karen Jones, Head of FICC Technical Analysis at Commerzbank, favors buying the dips in the USD/JPY pair.
USD/JPY attention is on the 114.38/82 major resistance. Dips lower should find initial support at the 200-day ma at 111.67 ahead of the base of the cloud at 111.03. We note the TD set up on the intraday charts and 13 counts on the 240-minute chart and will wait and buy the dips.
Where are we wrong? Below the cloud, we remain unable to rule out losses to extend to the 78.6% retracement at 108.90.
Short-Term Trend (1-3 weeks): Approaching the 2015-2017 resistance line.
Long-term trend (1-3 months): Is trying to bottom out but so far remains range bound.
• Weaker US bond yields help gain traction for the second straight session.
• Positive commodity prices remain supportive of the recovery move.
• US PPI print eyed for fresh impetus ahead of RBA’s Lowe.
The AUD/USD pair traded with a positive bias for the second consecutive session and was seen building on previous session's recovery move from 6-month lows.
The pair has been finding decent support near the key 0.7500 psychological mark and further benefitted from a subdued US Dollar price action. A softer tone surrounding the US Treasury bond yields kept the USD bulls on the defensive and prompted a follow through short-covering trade around higher-yielding currencies - like the Aussie.
Adding to this, a mildly positive trading sentiment around commodity space provided an additional boost to the commodity-linked Australian Dollar and remained supportive of the pair's modest recovery move to mid-0.7500s.
Later during the NA session, the US PPI print would now be looked upon for some short-term trading impetus ahead of the RBA Governor Philip Lowe's speech during early Asian session on Wednesday. The key focus, however, would remain on the highly anticipated FOMC announcement, during the NY session on Wednesday, which would help investors determine the pair's next leg of directional move.
Technical levels to watch
Immediate support remains near the 0.75 handle, below which the pair is likely to accelerate the slide towards 0.7475 intermediate support en-route 0.7450-45 support area.
On the upside, a follow-through recovery beyond 0.7565 level should assist the pair to reclaim the 0.7600 handle before eventually lifting it to 0.7625-30 supply zone.
Imre Speizer, Research Analyst at Westpac, suggests that the key event for the US dollar this week will be the FOMC decision on Wed (Thu morning NZ time) and a hike is almost assured, so that more attention will be paid to the Fed’s projections of future hikes.
“An upward drift in the projection range and potential firming in other forecasts should have the USD firming into the FOMC. However, expectations are rising, and the market could be disappointed if the 2018 median does not rise to imply four hikes, even if the Fed sends a strong “full steam ahead message”.”
“3 months ahead: Consensus expectations universally expect higher inflation and higher interest rates in 2018. The risk is that inflation may continue to undershoot expectations, but the Fed forges ahead with rate hikes (and balance sheet normalisation). If the Fed delivers five hikes in 2018 and 2019 - as projected by the median - absent any meaningful acceleration in price pressures, the stance of policy will push well past accepted estimates of neutral. Hikes thus far amid low inflation have not been an “issue” given that the Fed has been well below neutral. If the Fed ends up running implausibly tight policy, it raises the risk that the Fed may need to ease back at some point in 2018, a development that will prove highly problematic for the USD.”
Brent vs. WTI Oil futures price spread rose to above $7/barrel, its highest level since May 2015, on supply concerns triggered by Forties shutdown. Reuters report says, "the pipeline, which can carry 450,000 barrels per day of Forties crude from the North Sea to the Kinneil processing terminal in Scotland, has been operating at reduced capacity for about four days before the shutdown."
Earlier today, brent prices rose to highest level since June 2015.
Karen Jones, Head of FICC Technical Analysis at Commerzbank sees scope for a small rebound courtesy of current intraday Elliott wave count.
GBP/USD has again eased back to its 20-day ma at 1.3347, which it is starting to erode. There remains an upside bias above last weeks low at 1.3320, current intraday Elliott wave counts imply that we should see a small rebound. It has recently broken above the 2014-2017 downtrend and this has introduced scope to the 1.3658/71 September high and double Fibonacci retracement. Below 1.3320 should be enough to alleviate immediate upside pressure and allow for weakness back to the 1.3157 2016-2017 uptrend.
Where are we wrong? The 1.3157 2014-17 uptrend represents the breakdown point to 1.2830/1.2774, the 38.2% retracement and August low, and the 1.2575 50% retracement.
Short-Term Trend (1-3 weeks): The 2014-2017 downtrend line has been eroded to target the 1.3658/71 double Fibo.
Long-term trend (1-3 months): A close below the 1.3157 uptrend will be viewed very negatively.
The sharp recovery in the dollar index (DXY) from the Nov. 27 low of 92.50 appears to have run out of steam near 94.00 levels, courtesy of the range bound action in the treasury yields.
The 10-year yield has been restricted largely to a narrow range of 2.3 percent to 2.45 percent since late October. An upside break of the trading range may revive the interest in the greenback and could lift the DXY well above 94.00 levels.
Focus on the Fed
Markets seem to have priced-in a 25 basis point rate hike, hence there is a risk of a drop in the USD following the rate hike. The bid tone around the greenback could strengthen if the Fed retains its hawkish interest rate forward guidance.
DXY Technical Levels
The index was last seen trading around 93.90 levels. A close above 94.00 (psychological hurdle) would open doors for 94.41 (Nov. 2 low) and 94.90 (Oct. 30 high). On the other hand, a breakdown of support of 93.81 (50-day MA + 5-day MA) would shift risk in favor of a drop to 93.49 (10-day MA) and 93.33 (100-day MA).
According to Karen Jones, Technical Analyst at Commerzbank, the EUR/USD pair remains vulnerable to extend its downward trajectory in the near-term.
"Yesterday we saw a small bounce higher – this is expected to remain short lived, and failed circa 1.1810 as expected. The 55 day ma has been eroded BUT we have seen NO close below here (1.1760). A close below 1.1712 the recent low should be enough to negate upside pressure and allow for slippage back to the 1.1553 7th November low."
• A mild USD weakness helps snap two-consecutive days of losing streak.
• UK CPI figures to provide some impetus ahead of this week’s key event risks.
• FOMC and BOE hold the key for next directional move.
The GBP/USD pair gained some positive traction on Tuesday and recovered part of previous session's slide back closer to near two-week lows.
A recent article published in The Telegraph quoted Brexit secretary David Davis saying that the UK government won't pay the agreed Brexit divorce bill if they fail to reach a trade deal with the EU by March 2019 and kept the British Pound under some selling pressure on Monday.
However, a mildly softer tone around the US Dollar helped the pair to snap two-consecutive days of losing streak and seems to be only factors driving the pair higher on Tuesday. Traders also seemed inclined to lighten their bearish bets ahead of this week's key event risks, including today's release of the crucial UK consumer price inflation figures for November.
• UK: November CPI to remain unchanged at 3% - ING
Apart from the headline CPI print, the highly anticipated FOMC announcement and the BOE decision, along with the UK employment details and the latest US inflation numbers will play an important role in determining the pair's next leg of directional move.
Technical levels to watch
A follow-through buying interest beyond 1.3370 level could lift the pair back towards the 1.3400 handle, above which the momentum could further get extended towards 1.3440 horizontal level ahead of 1.3480 supply zone.
On the flip side, sustained weakness below 1.3330-25 area now seems to drag the pair below the 1.3300 handle towards its next support near the 1.3285-80 region. The bearish slide could further get extended towards 1.3230-25 support area.
Analysts at ING expect UK’s headline CPI to remain unchanged at 3%, but more importantly, they think this is a peak.
“The bulk of the pound's depreciation has now passed through to inflation, and both core and headline inflation will start to trend lower through the spring. The question now is whether 'domestically-generated' inflation will speed up next year - but sluggish growth and political uncertainty could limit firm's ability to increase prices and wages.”
• Retreats a bit from Monday’s near 4-week tops.
• Investors refrain to place bets ahead of FOMC meeting.
• US PPI eyed for some short-term trading impetus.
The USD/JPY pair lacked any firm directional bias and traded with a mildly softer tone around mid-113.00s, albeit remained within striking distance of near 4-week tops touched in the previous session.
A combination of factors, including a subdued US Dollar price moves and the prevalent cautious sentiment around equity markets, which tends to benefit the Japanese Yen's safe-haven appeal, kept a lid on the pair's near-term upward trajectory.
Moreover, investors also seemed reluctant to place fresh bets and preferred to wait on the sidelines ahead of this week's FOMC meeting for a fresh catalyst.
Given that a rate hike this week has already been priced in, investors would be looking for clues over the Fed's policy outlook for 2018, which would eventually help determine the pair's next leg of directional move.
In the meantime, today's US PPI print would be looked upon for some short-term trading impetus ahead of Wednesday's key event risk and the very important release of consumer inflation figures.
Technical levels to watch
Immediate support is pegged near the 113.25-20 region, which if broken could drag the pair back below the 113.00 handle towards its next support near 112.70 horizontal zone.
On the upside, 113.65-70 area now seems to have emerged as an immediate hurdle, above which the pair is likely to dart towards reclaiming the 114.00 handle en-route its next major supply zone near the 114.30-40 region.
Analysts at TDS are looking for UK’s headline CPI to remain unchanged at 3.0% y/y in November, which is in line with both consensus and the BoE’s forecast from the November IR.
“Underlying that is an ease in core inflation from 2.7% to 2.6% y/y, due largely to base effects as the larger gains from last year fall out of the equation, while energy prices will continue to support the headline due to the recent rise in crude oil prices. While core inflation momentum has declined as peak impact of exchange rate pass-through is behind us, it’s still far stronger than that of the Eurozone for example, so still supports the idea of a slow and steady rate hike cycle from the BoE.”
“EUR: We see a bit of upside risk to the ZEW data for December. We look for the current assessment to rise a touch to 89.2 (mkt 88.5), and for expectations to remain unchanged at 18.7 (mkt 18.0).”
Analysts at Nomura believe rate spreads and monetary policy stances will remain the key drivers of G10 FX into 2018, for three reasons.
“First, a low volatility environment tends to increase the importance of rate spreads as the driver of the G10 FX market. Obviously, the sustainability of a low-volatility environment in the global financial market needs to be kept in check, but our main scenario is that global economic expansion continues into 2018. There will be event risks ahead and an occasional risk-off type reaction is unlikely to be avoidable, but given the benign global economic environment, we think volatility will be contained. Consequently, the importance of rate spreads will remain intact.”
“Second, higher FX sensitivity to rate spreads is also explained by smaller divergence in the interest rate level among G10 economies. After the financial crisis, most central banks lowered their policy rate to the lowest ever, and the size of rate differential among them has shrunk. As a result, a small change in policy rate and yield could have more significance on FX markets than previously.”
“Third, the lift-off of the policy rate and/or an exit from unconventional monetary easing can have non-linear impacts on FX markets. Before the taper tantrum in May 2013, the correlation between USD and US rates were negative or neutral. However, after then Fed Chair Bernanke’s comments on the possibility of earlier tapering, USD started reacting positively to higher US rates. We also observed much higher sensitivity of EUR to euro area rates this year (particularly in longer-end tenors), as the ECB normalisation attracts market interest. In 2017, the BoE and BoC also entered their tightening cycles, and there will be more G10 central banks entering their normalisation phase in 2018. According to our measures, output gaps across the regions have been closing.”
The breakthrough in Brexit talks on separation issues finally arrived and EU citizens’ rights and the financial settlement had already been agreed, but the main sticking point had been the Irish border after Brexit, according to analysts at Lloyds Bank.
“The agreement guarantees no “hard border” in Ireland, even in the event of no future EU-UK trade agreement, but it also provides sufficient assurances for Northern Ireland’s unionists, including “no new regulatory barriers” with the rest of the UK without consent. The European Commission will now recommend at this week’s summit of EU leaders (Thu/Fri) that “sufficient progress” has been made and that negotiations should move on to a transitional deal and a new trading relationship. Discussions are expected to begin in the early part of next year, although it remains to be seen how quickly a transitional deal will be agreed in order to provide certainty for businesses.”
“Data wise last week, November UK services PMI dropped back to 53.8 from 55.6 in October, although the average so far for the quarter (54.7) is still above Q3 (53.5). The British Retail Consortium reported a 0.6%y/y rise in the value of like-for-like sales in November, led by higher food sales. Non-food sales, however, were down 1.2%y/y over the latest three months. The BRC said that Black Friday sales failed to shift underlying spending trends.”
“For this week’s official November retail sales figures (Thu), we have pencilled in a monthly fall of 0.4% in the volume of sales (excluding fuel). UK consumer price inflation (Tue) and labour market statistics (Wed) are also due. We expect headline CPI inflation to be unchanged at 3.0% in November and to start drifting gradually lower thereafter. Meanwhile, the unemployment rate for the three months to October is forecast to edge down to 4.2% from 4.3%, while annual average earnings growth is predicted to rise to 2.5% from 2.2%.”
As futures of the cryptocurrency began trading on the CBOE exchange, the newly launched bitcoin futures witnessed good two-way moves on Monday. The world's most traded digital currency surged through the $17,000 mark to hit a fresh record high and triggered two temporary trading halts, designed to calm the market. The initial euphoria, however, turned out to be short-lived, with prices now trying to stabilize around $16,500 during the Asian session on Tuesday.
Meanwhile, Ethereum, the second most traded digital currency, bucked the trend and extended its bullish trajectory to set a fresh record high on Tuesday. At the time of writing, the ETH/USD was trading around $530, gaining in excess of 3.0% for the day.
The total market capitalization of all digital coins on CoinMarketCap was $459.22 billion, while Bitcoin’s market capitalization alone stood at $ 279.03 billion.
Andrew Hanlan, Research Analyst at Westpac, notes that the NAB business survey reported that the Australia’s business conditions index pulled-back in November, down 9pts to a still elevated and above average +12. That more than reversed the 7pts spike in October, which Westpac interpreted at the time as most likely noise, he further adds.
“Business confidence moderated, down 3pts to +6, a reading in line with the long-run average. The survey was conducted from November 20 to 26.”
“How to interpret the survey? Setting aside the October spike and subsequent reversal, the elevated level of the business conditions index is overstating actual conditions across the broader economy, as it has tended to do since the GFC. In part this bias is due to the exiting of firms from some sectors, such as the auto industry.”
“Nevertheless, the survey has identified key emerging trends, around economic conditions and employment growth.”
“Following are some points of interest.
Analysts at OCBC Bank note that sentiments in the Chinese bond market stabilized in November, on hopes of a reduced bond supply by China Development Bank after a bond swap to reduce duration, and a cancelation of its 10-year issuance.
“10-year government bond yield retreated to below 3.9%. The PBoC also announced new regulations to further differentiate good quality asset management products from the bad. In the long run, we expect the demand for assets such as government bond and policy bank bonds to increase. Near term, however, the unwinding of good quality, liquid assets in response to the new regulations may have pushed these yields to multi-year highs.”
“In Hong Kong, one-month HIBOR topped 1% last week for the first time since late 2008 due to year-end effect and banks’ preparation for Fed’s Dec rate hike. We remain wary that tight liquidity condition may persist until end of this year. The possibility of one-month HIBOR testing 1.1-1.2% range cannot be ruled out. The uptrend in HIBOR may hit some corporate loan demand and mortgage loan demand.”
“Apart from short term liquidity considerations, expect little discretionary impetus from the PBoC over the CFETS RMB Index or the USD-CNY midpoints into the end of the year. Stability remains the operative word for PBoC at this juncture, and our house view remains for a stable CNY NEER into 2018. As a result, expect the USD-CNY and USD-CNH rate to continue to reflect fluctuations in the basket’s constituent currencies.”
NZD/GBP’s recent rebound could extend to 0.5325 - the Nov high, according to Imre Speizer, Research Analyst at Westpac.
“Some progress on the Brexit divorce has given little support to GBP. The event calendar during the week ahead includes CPI/ PPI (12th), employment (13th), and the highlight - BoE (14th).”
“CPI, housing employment and wages data over the next week will prove critical barometers of just how strained the UK consumer is likely to be into the Christmas season. They will also be critical inputs into the BoE meeting on 14th Dec.”
“3 months ahead: Medium term direction depends largely on whether the uncertainty from Brexit eventually causes a slowdown in activity. If not, then NZD/GBP could test 0.50.”
Analysts at Nomura find that in 2017, rates differentials have continued to play a crucial role in explaining relative G10 FX performance.
“We have seen a large divergence emerging between EUR/USD and the rates differential recently, but we view this is likely explained by temporary factors. Thus, we expect monetary policy expectations to remain a key driver of G10 FX in 2018, with volatility likely to remain subdued and more central banks moving towards normalisation in 2018. Thus, gauging which economies will see the largest inflationary impacts can be important in determining policy direction in 2018.”
“We continue to expect a hawkish shift from the ECB, which could see the EUR upside trend continue in 2018. We expect the Scandies to outperform the EUR – particularly NOK – and GBP to remain supported by the BoE hiking twice in 2018. Meanwhile, Fed hikes at this mature stage in the policy cycle are unlikely to provide the USD with much respite as the rest of the world leaves the lower bound. AUD, NZD and CHF are likely to underperform with their central banks’ dovish stances remaining intact through 2018.”
The American dollar is flatlined, but it could regain the bid tone ahead of tomorrow's FOCM rate decision, indicate the benchmark bond yield spreads.
The US-German 10-year yield spread rose to 209.5 basis points yesterday; its highest level since April 12. Also, the 10-year US-UK yield spread rose to 118 basis points (bps); its highest level since Aug. 15. In both cases, the widening of the yield spread indicates good times ahead for the USD.
The 10-year Australia-US yield spread remains near the 17-year low of 10 bps hit on Nov. 30. The spread may turn negative (AUD would lose its high yielding currency status) if the Fed sounds hawkish and Thursday's Aussie labor data disappoints expectations. Meanwhile, the 10-year US-Japan spread continues to move in a sideways manner in the range of 225 bps to 240 bps.
What's brewing in forex majors?
GBP/USD - The bearish 5-day MA & 10-day MA cross, coupled with the breach of ascending trendline and widening US-UK yield spread rises indicates the spot is on the back foot ahead of the UK CPI release. Kathy Lien from BK Asset Management writes, "the UK economy is performing better since the BoE raised interest rates in November but at the time, they said inflation peaked, which suggests that tomorrow's CPI report could come in softer. If they're right and price pressures eased in November, then GBP/USD could take out 1.33 easily."
EUR/USD - Candlestick patterns signal confusion in the market, but a USD-favorable rise in the US/DE yield spread indicates the downside is still in play. Also, EUR/USD risk reversals have adopted a bearish bias.
USD/JPY - The mood for risk continues in Tokyo and the yen is struggling in this environment ahead of the FOMC's expected rate hike later this week.
AUD/USD - dropped to 1-hour 50-MA level of 0.7519 after the data released in Australia showed the house price index dropped 0.20 percent q/q in the third quarter vs. expected print of 0.5 percent. Meanwhile, the National Australia Bank's (NAB) business confidence index fell 9 points to +12 index points in November. Business confidence also retreated from +9 (last month) to +6 in November.
Brexit commentary to be closely watched - ANZ
Australia: Business conditions drop but are still elevated, tentative signs of wage growth - NAB
Moody's - Leverage in China to increase at a slower pace
Moody's sees tightening bias in China
Saudis to slash oil exports to Asia by 100,000 Bpd
RBNZ: how will new Governor interpret the intended "dual mandate" - Westpac
JOLTS: decreased 181k in October to 5996k - Nomura
According to Imre Speizer, Research Analyst at Westpac, NZD/EUR’s recent rebound could extend to 0.6000 - the Nov high.
“Two key releases undershot expectations in the past week: CPI and retail sales. The event calendar during the week ahead includes ZEW surveys (12th), GE final CPI, EZ ind prod & EZ Q3 empl. (13th), early Markit flash PMIs (14th). The highlight event will be the ECB decision on 14th. Muted inflationary pressures and the inability of Merkel to form a working coalition suggest that ECB policy will be decidedly unchanged.”
“3 months ahead: European economic data is improving, witness sentiment surveys at multi-year highs. However, after easing recently, political tensions in the EU could still resurface, with disconcerting rises in periphery parties in Germany and the prospect of Italian elections in H1 18. A German coalition may take months to form. Barring political shocks, though, NZD/EUR should gravitate lower towards 0.56.”
Brent oil caught a bid wave in Asia and rose to $54.34; its highest level since June 2015.
The unplanned closure of a major North Sea pipeline for repairs is seen taking off significant barrels of the table. As per Reuters report, "Britain's Forties oil pipeline, the country's largest at a capacity of 450,000 barrels per day (bpd), shut down on Monday after cracks were revealed. The pipeline carries significant amounts of the physical crude that underlies Brent futures."
Consequently, oil is on the rise. Also, the oil market is already tightening due to OPEC-led output cuts. The pipeline closure only validates the bullish case put forward by the output cut deal.
Brent Technical Outlook
Reuters technical report says, "Brent oil may rise further to $65.50 per barrel, as suggested by its wave pattern and a Fibonacci projection analysis."
"The consecutive gains from the Dec. 6 low of $61.13 suggest the progress of a powerful wave 3, the third wave of a five-wave cycle from this low. This wave is capable of traveling into a range of $66.46-$67.05, formed by its 138.2 percent and the 161.8 percent projection levels. A more realistic target will be $65.50."
"Based on the consolidation range from the Nov. 7 high of $64.65 to $61.13, oil could surge above $67.05. A correction could be limited to $64.25."
According to the IMM FX positioning for the week ending December 5, USD shorts were little changed at -39K while EUR longs rose by 3K to 93K.
“JPY shorts increased by 4K to -114K. GBP longs rose by 2K to 6K. Positioning in CHF was little changed at -30K. CAD longs were pared back a bit ahead of the BoC, now at 43K. AUD longs rose by 1K to 40K and NZD shorts were cut back by 1K to -13K. MXN longs rose by 7K to 97K.”
NZD/JPY’s recent rebound could extend to 79.45 - the Nov high, suggests Imre Speizer, Research Analyst at Westpac.
“The data calendar during the week ahead is busy, although holding little interest for JPY markets: Oct BoP, revised Q3 GDP, Nov eco watchers survey, Oct machinery orders and “very” preliminary Dec manufacturing PMI.”
“3 months ahead: The BOJ has defacto tapered its asset purchases (JGB purchases are running at JPY 30tr/yr, rather than the 80tr official target) should be yen supportive. In addition, the Japanese economy is seeing a pickup in consumer activity, mitigating any slippage in external demand. We target 76.”
Analysts at ANZ note that NZD/USD received a boost yesterday as Adrian Orr was named as the new Reserve Bank Governor.
“Topside resistance is expected to hold today with a break outside recent ranges only likely as volatility picks-up around key central bank meetings and NZ governments fiscal update.”
“Support 0.6820 Resistance 0.6920”
The NZD/AUD cross’s corrective rebound targets 0.9245 during the week ahead and the cross’s rise over the past month reflects something other than the usual drivers (rates, commodities) going on, according to Imre Speizer, Research Analyst at Westpac.
“We point to a string of data disappointments (retail sales, trade, household consumption) which has hurt the AUD. It remains to be seen whether strong jobs data can break the run this week.”
“The event calendar this week contains Nov NAB business confidence (Tue), Dec Westpac/MI consumer sentiment (Wed), and Nov employment (Thu) - the highlight.”
“3 months ahead: We target 0.89 during the next few months. Australia’s key commodities could outperform NZ’s (particularly if iron ore prices rise in sympathy with steel prices at multi-year highs). Relative interest rates are unlikely to feature strongly, since both the RBA and RBNZ are likely to be on hold for a long time, implying no major interest rate advantage to either currency.”
Comments from ratings agency Moody's crossing the wires via LiveSquawk-
In view of analysts at ANZ, Brexit commentary will be closely watched this week as UK Ministers made comments suggesting they weren’t 100% committed to the promises made last week to secure a deal, especially as regards the vexed question of the Irish border.
“In particular, Brexit Secretary David Davis commented that the deal “was much more a statement of intent than it was a legally enforceable thing” – though he later backtracked. EU envoys made it clear overnight that the next phase of talks would not occur if the deal doesn’t stand. The uncertainty saw UK bonds gain and GBP edge lower overnight.”
NZD/USD formed a near term bottom over the past six weeks and targets 0.6980 (the early Nov high) during the week ahead, according to Imre Speizer, Research Analyst at Westpac.
“Near term rationale for a rise include NZD/ USD’s undervaluation, plus speculators’ extreme short positioning.”
“The NZ data calendar during the week ahead doesn’t hold much for markets (Q3 manufacturing activity, REINZ house sales, and manufacturing PMI), but there will be some interest in the HYEFU on Thu.”
“Three months ahead: Our medium term outlook for NZD/USD remains largely dependent on the outlook for the US dollar. A persistent rebound in the US dollar should drag NZD/USD lower to the 0.67 area during the next few months.”
Last month’s surprise spike in Australia’s business conditions was more than unwound in November, although that was partly expected, according to analysts at NAB.
“Despite the drop, business conditions remain well above the long-run average and are at solid levels across most of the economy. Forward orders were stronger as well. The construction industry is looking particularly good, but the retail sector is still lagging behind.”
“Additionally, most states are seeing very solid business conditions, although WA is only moderately positive. The Survey’s employment index held steady at previous levels, pointing to adequate jobs growth that should further lower the unemployment rate. Wage costs picked-up this month, coinciding with reports from some firms that wage costs are impacting confidence.”
“Last week’s National Accounts again highlighted the growing divide between the relatively upbeat business sector and seemingly restrained households. The NAB Survey suggests that trend may continue going into Q4, and we are continuing to watch the softer trends in confidence and the retail sector, as both can have significant implications for the outlook.”
“Business conditions more than gave back the sharp gains from last month, with the business conditions index falling 9 points to +12 index points – albeit still well above the long-run average (+5). Meanwhile, business confidence is currently in line with long-run average levels, at +6 index points (down from +9 last month), although there has been a notable downward trend in the series since around the middle of the year.”
“According to Alan Oster, NAB Group Chief Economist “we expected to see last month’s spike in business conditions unwound fairly quickly as it both came as a bit of a surprise, and was also out of sorts with what we were seeing in some of the other leading indicators from the survey, such as forward orders. But even after this decline, business conditions are still very much above the long-run average and suggest to us that Australian business are quite happy with how things are going. That said, we are paying close attention to what now appears to be a downward trend in business confidence as that could naturally have some implications for decisions around hiring and investment. Meanwhile, forward orders – which have had a close relationship with non-mining activity – were stronger this month”.”
“Overall, there was nothing in this month’s Survey that would prompt us to alter our view of the Australian economy. We remain cautiously optimistic that Australia will see temporarily above trend economic growth in coming quarters, and while there are still some significant challenges to the outlook, support from business investment and infrastructure construction should be enough to prompt the RBA to consider a gradual removal of emergency policy stimulus. We maintain our expectation for the first RBA hike to come in the second half of next year, but only if the labour market and wages improve further” said Mr Oster.”
EUR/USD topped out above 1.18 yesterday and ended with minuscule gains at 1.1768. The resulting candle looks like a gravestone doji (the candle with a long upper shadow), which indicates the buying pressure was countered by a strong selling pressure. It is usually considered a sign of bull market exhaustion.
What's more interesting is the fact that yesterday's gravestone doji was preceded by a dragonfly doji candle, which shows the sellers could be running out of steam. Thus, charts/candlestick patterns convey a mixed message.
However, the bond yield spread indicates the bears could have an upper hand in the ongoing tug of war with the bulls. The US-German 10-year yield spread rose to 209.5 basis points yesterday; its highest level since April 12.
Focus on Zew survey
Kathy Lien from BK Asset Management says the German ZEW survey could show that the nation's recent political troubles are having a negative effect on investor sentiment. "Technically, if EUR/USD breaks below 1.1750, then 1.1700 becomes fair game", Lien says.
EUR/USD Technical Levels
FXStreet Chief Analyst Valeria Bednarik writes, "the pair has been unable to surpass the 61.8% retracement of the late November bullish run around the 1.1800 figure, presenting a neutral stance in the 4 hours chart, as technical indicators have completely corrected oversold conditions, but lost upward strength once reaching their mid-lines, suggesting the corrective movement may well be over. In the same chart, the price stands a few pips above a still bearish 20 SMA, but between horizontal larger ones, a sign of the current lack of directional strength. The pair would need to advance beyond 1.1830 to look a bit more positive, while the key support is the 1.1710/20 price zone, where the pair bottomed late November and last week."
Support levels: 1.1750 1.1710 1.1660
Resistance levels: 1.1800 1.1830 1.1860
Simon Murray, Research Analyst at Westpac, notes that the Westpac–AusChamber Actual Composite index fell in December 2017, down to 63.4 from 66.1 in September. That is a slight pull back after an extended rebound from 55.1 in June 2016, a dip coinciding with the July Federal election, he further adds.
“The above par reading for the Composite Index, which has trended higher since 2014, reflects strength in new orders, output, overtime, backlog and employment. While the momentum in new orders, output and backlog moderated, employment remained robust.”
“Manufacturing is benefitting from: a strong upswing in public infrastructure investment; renewed expansion in non-mining business investment; and a still relatively low Australian dollar combined with a lift in global growth. The level of home building activity is still high, but it is now turning lower. More pressing negatives are: subdued consumer spending constrained by slow wage growth; and continuing intensity from offshore competitors.”
“The uptrend in exports has continued at a moderate pace after stumbling in 2016, with a net 4% of firms indicating a rise in export deliveries. Export expectations are moderately positive, coinciding with rising world trade volumes after a period of contraction as well as support from a relatively low AUD.”
“Expectations are positive, centred on new orders and output as well as backlog and overtime. The Expected Composite is at 61.8 in December, down from 65.2 in September and 65.7 in June. A net 29% expect the general business situation to strengthen over the next six months. While lower than a net 35% in the past quarter, the survey continues to reflect an upbeat mood.”
“Equipment investment intentions of respondents have been positive over recent years in response to rising demand and consistent with a reduction in the sector's spare capacity, as well as improving profitability. A net 15% of firms expect to increase equipment investment in the next year. Building intentions have recovered to a net 2% in December after dipping to a net -3% in September.”
“The survey's Labour Market Composite, which broadly tracks economy-wide jobs growth, is at 60.0 in December, pointing to continued solid jobs growth in the near-term. The index correctly foreshadowed the acceleration in Australian employment through 2017.”
The GBP/USD fell for the second day yesterday and closed at 1.3337, leading to a bearish 5-day MA and 10-day MA cross. Yesterday's close was also below 1.3350 (38.2% Fib R of Oct-Dec rise). Further, it also breached the support of the ascending trend line (drawn from Nov. 14 low and Nov. 28 low). Clearly, the short-term technicals have turned in favor of the bears.
Also, the 10-year US-UK yield spread rose to 118 basis points (bps); its highest level since Aug. 15. The widening of the yield spread in the GBP-negative or USD-positive manner only adds credence to short-term bearish technicals.
That said, only a close below 1.3288 (50% Fib R of Oct-Dec rise) would confirm the bearish view, says Reuters report.
Focus on UK CPI
A weaker-than-expected UK CPI release could yield a break below 1.3288 levels. Kathy Lien from BK Asset Management writes, "the UK economy is performing better since the BoE raised interest rates in November but at the time, they said inflation peaked, which suggests that tomorrow's CPI report could come in softer. If they're right and price pressures eased in November, then GBP/USD could take out 1.33 easily."
GBP/USD Technical Levels
FXStreet Chief Analyst Valeria Bednarik says, "technically, the risk is toward the downside according to the 4 hours chart, as the price was unable to regain ground above a bearish 20 SMA, now breaking through a major support, the 61.8% retracement of its late November bullish run. Indicators in the mentioned chart head lower within negative territory, also supporting a bearish extension towards 1.3300, en route to 1.3260, once the first gives up."
Support levels: 1.3300 1.3260 1.3220
Resistance levels: 1.3345 1.3380 1.3420
Comments from ratings agency Moody's crossing the wires via Reuters-
Having witnessed a bearish pin bar reversal in the last two trading days, the GBP/JPY is trading on the back foot in Asia.
As of writing, the pair is at 151.30 levels. Friday's pin bar candle and a bearish follow-through yesterday indicates the cross may have found a top at 153.41 and the pair could explore the downside towards 150.00 levels in the short-run.
Also, the yield differential, i.e. the difference between the 10-year UK and Japan bond yield fell to a three-month low of 115.1 basis points (bps) yesterday. The narrowing of the spread in the GBP-negative manner adds credence to the bearish view put forward by the pin bar candle.
Eyes UK CPI
The cost of living in the UK as represented by the consumer price index (CPI) is seen rising 3 percent y/y in November. The core inflation is seen rising 2.7 percent y/y. A higher inflation figure might help the GBP regain bid tone.
GBP/JPY Technical Levels
A move below 151.23 (previous day's low) could open up downside towards 150.00 (psychological level) and 149.76 (Dec. 12 low). On the higher side, breach of the hurdle at 151.60 (session high) could yield a rally to 151.94 (Nov. 1 high) and 152.48 (Dec. 1 high).
The EUR/USD one-month 25 delta risk reversals fell to -0.05 yesterday, indicating increased demand for the bearish bets (Puts) on the common currency.
Yield differential widens
Also, the 10-year US-German yield spread rose to 209.5 basis points (bps); the highest level since Apr. 12. The widening of the spread in the USD-positive manner indicates the EUR/USD could extend the decline from the recent high of 1.1961 to 1.1709 (61.8% Fib R of Nov. 7 high - Nov. 27 high).
The People's Bank of China (PBOC) sets the Yuan reference rate at 6.6162 vs. previous day's fix of 6.6152.
The Saudi Energy Ministry said on Monday that it cut its crude oil exports to Asia by more than 100,000 barrels per day (bpd) in January compared to December, but will keep its exports to Europe and the U.S. unchanged.
“We hope that by leading by example, our partners from OPEC and non-OPEC will do the same in order to keep conformity levels above 100 percent and accelerate the rebalancing of the market,” the energy ministry spokesman said.
As per Reuters report, Saudi Arabia’s overall global crude oil shipments will be kept at 6.9 million bpd in January,
USD/JPY rose from 113.24 to 113.69 the high overnight in risk-on NY and, currently, USD/JPY is trading at 113.57, up 0.02% on the day, having posted a daily high at 113.59 and low at 113.49.
The mood for risk continues in Tokyo and the yen is struggling in this environment ahead of the FOMC's expected rate hike later this week. The VIX closing at its lowest in a month helped to encourage investors into Wall Street's benchmarks overnight for the best close in stocks since 1992.
Forex today: VIX closing the lowest in a month ahead of FOMC this week, dollar slides
The 10-year note yield was falling intraday to 2.36% before regaining the 2.38% level, although the 30-year note yield closed the day at 2.77%, below the previous 2.78%.
Valeria Bednarik, chief analysts at FXStreet explained that the 4 hours chart shows that the price has held above its 100 and 200 SMAs far below the current level, while technical indicators are turning back north after correcting extreme overbought conditions, all of which indicates that selling interest remains well-limited around the pair. "A fresh multi-week high was set at 113.65, now the immediate resistance and the level to surpass to open doors for a test of the critical long-term resistance at 114.40." Valeria added.
The AUD/USD pair dropped to 1-hour 50-MA level of 0.7519 after the data released in Australia showed the house price index dropped 0.20 percent q/q in the third quarter vs. expected print of 0.5 percent.
Meanwhile, the National Australia Bank's (NAB) business confidence index fell 9 points to +12 index points in November. Business confidence also retreated from +9 (last month) to +6 in November.
The weak data is boding well for the AUD bears, although the spot is still holding above the 1-hour 50-MA support. Ahead in the day, the pair may dip below 0.75 levels if the US producer price index (PPI) betters estimates.
AUD/USD Technical Levels
Jim Langlands from FX Charts prefers trading from the short side. He writes, "selling into rallies is still preferred but we could easily see a run back to the 100 WMA (0.7550) which could act as a magnate over the next 24 hours Beyond there would find sellers at 0.7565/70. On the downside, there will be plenty of work to do at 0.7500, below which, 0.7470/80 area will be strong, so taking some profit on shorts and looking to resell into a rally may be a more medium-term plan."
Valeria Bednarik, Chief Analyst at FXStreet, says, "in the 4 hours chart, the price remains well below a bearish 20 SMA, currently at 0.7580, while the Momentum indicator consolidates within the oversold territory, as the RSI is also flat at 33. The main support is now the 0.7500 figure, with a break below it exposing 0.7450, and with a weekly close below it favoring a continued slide towards 0.7250, the next big static support."
Support levels: 0.7500 0.7450 0.7420
Resistance levels: 0.7570 0.7600 0.7640
The National Australia Bank's (NAB) business confidence index fell 9 points to +12 index points in November but is still well above the long-run average of +5. Meanwhile, business confidence is retreated from +9 (last month) to +6 in November. There has been a notable downward trend in the series since around the middle of the year.
According to Alan Oster, NAB Group Chief Economist, “we expected to see last month’s spike in business conditions unwound fairly quickly as it both came as a bit of a surprise, and was also out of sorts with what we were seeing in some of the other leading indicators from the survey, such as forward orders. But even after this decline, business conditions
are still very much above the long-run average and suggest to us that Australian business are quite happy with how things are going. That said, we are paying close attention to what now appears to be a downward trend in business confidence as that could naturally have some implications for decisions around hiring and investment.
Meanwhile, forward orders – which have had a close relationship with non-mining activity – were stronger this month".
Other key quotes
“The construction industry has been a clear standout in the Survey and was the only industry where business conditions did not fall in November.
"NAB’s employment index has been reassuringly steady over recent months, holding at levels that suggest further job gains and lower employment, which may help to spur a turnaround in wages growth and therefore consumer spending."
"Indeed, we saw some tentative signs of higher wages in the Survey, although that does appear to be weighing on the confidence of some firms as well.”
"We remain cautiously optimistic that Australia will see temporarily above-trend economic growth in coming quarters, and while there are still some significant challenges to the outlook, support from business investment and infrastructure construction should be enough to prompt the RBA to consider a gradual removal of emergency policy stimulus."
"We maintain our expectation for the first RBA hike to come in the second half of next year, but only if the labour market and wages improve further”
Analysts at Nomura their model projections for today's fix.
"Our model1 projects the fix to be 23 pips higher than the previous fix (6.6175 from 6.6152) and 2 pips higher than the previous official spot USD/CNY close of 6.6173. The basket implied change is 2 pips higher than the previous official spot USD/CNY close (6.6175 from 6.6173)."
Analysts at Westpac noted that Adrian Orr was appointed Governor of the Reserve Bank of New Zealand, and will begin his five-year term on March 27.
"We would describe this as a balanced choice.
Adrian is currently Chief Executive Officer of the New Zealand Superannuation Fund. He has done two previous stints at the Reserve Bank - from 1997 to 2000 he was Head of the Economics Department, and from 2003 to 2007 he was Deputy Governor and Head of Financial Stability. Between those stints he was Chief Economist at Westpac, where a key part of his role was to monitor and forecast the Reserve Bank's actions.
While this is not an internal appointment, Adrian is closer to being a Reserve Bank insider than other recent Governors. Neither of the past two Governors had ever worked for the Reserve Bank before they were appointed, and Don Brash worked there only briefly as a graduate.
Adrian will start with an excellent understanding of the Reserve Bank and both of its key policy functions, monetary policy and financial sector regulation. He is well known as a strong communictor and is no stranger to the media, which bodes well for the clarity of communications with financial markets.
The key area of interest to us is how the new Governor will interpret the intended "dual mandate" - the Government's intention to have the Reserve Bank target both employment and inflation. The law won't be changed before Mr Orr starts, but the Policy Targets Agreement signed by the incoming Governor and the Minister of Finance will reflect the spirit of the impending law change, so the RBNZ's reform will presumably start immediately.
We have been wary of the dual mandate, because it might make it harder for the Reserve Bank to raise interest rates when inflation is too high (since doing so could conflict with a directive to maximise employment). With Adrian Orr as Governor, we would expect the Reserve Bank to remain realistic about what monetary policy can achieve in the long run, while at the same time paying more attention to employment over economic cycles.
The New Zealand dollar rose half a cent on the news of the appointment, and interest rates rose slightly."
Analysts at ANZ explained that on Wednesday, the Fed is expected to hike the fed funds rate.
"On Thursday, the ECB should unveil details of its QE tapering plan.
The Bank of England and the Swiss National Bank also meet."
"Add to that the EU Summit, some key data releases (i.e. US CPI, retail sales), ongoing headlines about Trump’s tax plans, NAFTA negotiations and no doubt more Brexit headlines and it would seem markets are unlikely to remain as quiet as they were last night."
Forex today allowed for a slide in the greenback as we approach the FOMC this week where much of the upside in the dollar was priced in on the basis of a 25bps hike and three more in 2018.
In the absence of fresh impetus besides the JOLTS job openings arriving at 5.996m vs 6.090m consensus, the DXY was down 0.03% at the time of writing at 93.87 having traded between 93.666 - 93.918 on the day as markets assess the divergences between global banks figuring that the Fed may not be too far ahead of the pack with a flatter yield curve anchoring the greenback at the start of the week.
The higher betas performed more positively on Monday with the VIX closing the lowest in a month and investor's motivations aided Wall Street at the start of the week with a steady rise in the benchmarks for the best close in stocks since 1992.
USD/JPY rose from 113.24 to 113.69 the high while the euro gave out to the bears into the close that failed on 1.18 attempts falling from a high of 1.1812 to a low of 1.1763. Sterling has been drifting lower from the off with Brexit concerns mounting in the European day with Brexit Minister Davis appearing to soft-pedal the agreements reached with EU negotiators, suggesting they represented as “statement of intent” rather than a legally enforceable deal." UK house prices also fall as markets await the more important CPI data on Tuesday. GBP/USD fell from 1.3431 to 1.3330 the session low.
As far as the commodity sector went, gold was the lowest since July. Oil remained firm, which analysts at ANZ argued that in part this reflected the solid growth climate, but also note that the Forties Pipeline System is being shut for repairs for some weeks - WTI rose 0.7% to USD57.8/bbl. Copper was tracking the mood around China while AUD was unable to capitalize on a weaker dollar despite improved tone across the high-beta sector, drifting lower from 0.7545 to 0.7503 the low. USD/CAD was caught i a sideways chop between1.2830/69 while the Kiwi sat on the 0.69 handle still at the top of its range after the Reserve Bank governorship announcements yesterday revealed that it will be left in the hands of Adrian Orr, a past head of the RBNZ Economics Department and Deputy Governor (currently heading the New Zealand Superannuation Fund).
Key events ahead:
Aussie House Price Index (QoQ) (Q3)
The National Australia Bank Business Confidence / Conditions
Key notes from US session:
JOLTS: decreased 181k in October to 5996k - Nomura
DJIA, S&P closed at records as Fed's meeting looms
Gold drops to fresh 4-month lows, tests $1240
AUD/USD has been stabilising the NY supply and is currently, AUD/USD is trading at 0.7527, down -0.03% on the day, having posted a daily high at 0.7531 and low at 0.7525.
AUD/USD opened the NY session on the bid and advancing the European session's highs until 0.7545 before offers emerged on a firm dollar where the Aussie dropped to 0.7515. Copper and iron-ore futures were a negative factor in the session as well.
What to watch for this coming Tokyo session?
However, eyes will be on the Tokyo open today to see whether the yen cross can catch a bid on further risk-on sentiment in the open; 0.8550 is the key level on the upside there to watch for. Meanwhile, there will be some Aussie housing and business conditions/confidence data to look out for as well.
AUD/USD is maintaining its bearish strength according to intraday technical readings, as in the 4 hours chart, the price remains well below a bearish 20 SMA, currently at 0.7580, while the Momentum indicator consolidates within an oversold territory, "The RSI is also flat at 33. The main support is now the 0.7500 figure, with a break below it exposing 0.7450, and with a weekly close below it favoring a continued slide towards 0.7250, the next big static support," Valeria added.
Analysts at ANZ explained that the Kiwi received a boost yesterday as Adrian Orr was named as the new Reserve Bank Governor.
"Topside resistance is expected to hold today with a break outside recent ranges only likely as volatility picks-up around key central bank meetings and NZ governments fiscal update."
"Support 0.6820 Resistance 0.6920."
Data source: FX Street
Disclaimer:This material is provided by FXStreet as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information presented here.