FUNDYS
The US Dollar is tracking marginally higher against the major currencies in a relatively quiet start to the week, with market participants seemingly easing in to more of an end of year holiday trading style with every passing day. Rumors of a potential China rate hike over the weekend were not supported, and the only move seen by the government was a lift in the reserve requirement on Friday. This followed a strong round of weekend data out of China, and some much higher than expected inflation readings. While risk appetite should be comforted with the stronger data, it could equally be compromised with the higher inflation readings that continue to suggest that further rate hikes will be needed.
Relative Performance Versus USD Monday (As of 10:45GMT)
- KIWI+0.39%
- AUSSIE +0.31%
- CAD+0.05%
- EURO-0.01%
- SWISSIE-0.02%
- YEN-0.37%
- STERLING-0.44%
Looking ahead, The FOMC is scheduled for Tuesday and as always, investors will be paying close attention to what the Fed has to say. Any signs of downplaying the need for additional QE, while at the same time sounding more upbeat on the outlook for the economy, will likely open a fresh round of broad based USD buying. Meanwhile, the EU summit meeting is scheduled for December 16-17 and will bring up the possibility of an expansion of the bailout fund. Other important events and releases include US retail sales on Tuesday and the Irish budget vote and Japanese Tankan on Wednesday.
Elsewhere, Australia Treasurer Swan was on the wires over the weekend to introduce a package of new banking measures in an effort to reduce the dominance of the country’s four largest banks that have been uncomfortably raising rates well above the RBA’s level. Meanwhile, German FinMin Shaeuble attempted to lobby on behalf of his currency over the weekend after coming out with some rather strong comments saying that the Euro would not fail and those that bet against it would have no success.
On the data front, Sterling has been weighed down a little more than some of the other currencies after Rightmove’s asking prices for homes in England and Wales fell for the second straight month. Price action in the Yen also stands out a bit with Usd/Jpy attempting to establish above its recent range highs by 84.40. The commodity bloc on the other hand, continues to outperform, with better bid oil and gold prices on Monday helping to bolster the demand. Data released in Europe proved to be a non-factor with Swiss PPI on the softer side while UK input PPI was a good deal firmer.
As we head into North America, Canada capacity utilization (75.8% expected) at 13:30GMT is the only scheduled release for that session. US equity futures are trading flat, while commodities are modestly bid.
GRAPHIC REWIND
TECHS
EUR/USD: The market seems to be in the process of consolidating following the latest minor bounce out from the 1.2970 multi-day lows. However, with the broader structure still bearish, we look for an eventual break of the consolidation to the downside. A close back below 1.3165 will help to confirm and accelerate declines, with a drop back below 1.2970 to open the door for a fresh downside extension exposing next medium-term support by 1.2585 further down. Meanwhile, back above 1.3420 delays outlook and suggests that further corrective upside is warranted before bearish resumption. It is however worth noting that the market has stalled out by some solid resistance in the form of the former rising trend-line support now turned resistance off of the 2010 lows and some falling channel resistance off of the November peak. This strengthens bearish outlook.
USD/JPY: Although the market continues to recover with prospects for a material base looking more and more encouraging following the recent break back above the daily Ichimoku cloud, inability to establish any meaningful upside momentum beyond 84.00 suggests that the recovery could be on hold for a bit, with the market now in the process of consolidating. Ultimately however, while the pair holds above 82.00 on a close basis we retain a constructive outlook. Only a daily close back below 82.00 will negate and open the door for a resumption of the broader underlying downtrend, while a break and close back above 84.40 will mark and end to the consolidation and open a fresh upside extension towards 86.00.
GBP/USD: The market continues to correct after establishing a short-term base by 1.5485 in the previous week, with gains inching closer to psychological barriers by 1.6000. However, any additional upside should ultimately be limited to the 1.6000 barrier, with a fresh lower top sought out ahead of the next drop below 1.5485 and towards some medium-term support by 1.5300 further down. Only a daily close back above 1.6000 would give reason for concern.
USD/CHF: We contend that the market is in the process of carving a material base by 0.9460, and any setbacks should be very well supported in favor of a sustained recovery. A fresh higher low has now been confirmed by 0.9550 following the latest break back above 0.9975, and the market should now accelerate beyond parity towards our next key topside objective in the 1.0280-1.0500 area over the coming sessions. The 1.0280 resistance represents the highs from September, while 1.0500 is the 200-Day SMA. Any intraday setbacks are expected to be well supported above 0.9700 on a close basis.
FLOWS
A US custodial was a standout buyer in Cable while a Swiss bank was a noted seller. Talk of an all day Eur/Gbp purchase for M&A purposes is also said to have involved a custodial name. Selling interest from a Japanese name in Aud/Jpy.
TRADE OF THE DAY
AUD/USD: We are not looking to force anything but will welcome a sell in the pair should the market attempt to rally back above 0.9900 on Monday. Despite the latest bounce, our core outlook remains bearish after the daily chart showed the trigger of a head & shoulders top formation that ultimately projects deeper setbacks down towards the 0.9100 area. It is not uncommon to see a break back above the previous neckline after a formation is broken, before the market eventually heads in the direction it is supposed to. As such, any rallies back towards the right shoulder peak which comes in by 0.9965 will be viewed as a formidable sell opportunity, and we will look to take advantage in the event of an overdone intraday move. STRATEGY: SELL @0.9950 FOR AN OPEN OBJECTIVE; STOP 1.0050. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM) ON MONDAY.
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