Asian FX Outlook: USD broadly higher on tax reform, upgraded inflation outlook

Ivan Delgado Independent Analyst

Main topics for Wed

USD trades broadly higher as tax reform optimism maintained, coupled with US producer prices at the highest levels in over 6 years.

The clock is ticking for the FOMC meeting, with expectations set for a rate hike in what would represent the latest press conference by Fed Chair Janet Yellen.

The latest beat in US PPI has some analysts looking for an upgrade of the guidance for 2018, now making calls of four rate hikes vs current three.

Ahead of the FOMC, the UK is set to publish its latest labour market report, with expectations set for an upward pressure in wages but an increase in jobless claims.

Following the surprising rise in US PPI, the market has upgraded its estimates for Wed's US CPI figures, due in early NY, which should underpin the buying interest in the buck.

A look at Forex majors

EUR/USD printed a bearish outside day after another failure at 1.18. Ahead of the FOMC, backed up by positive fundamentals, the USD appears to have the momentum to attack the 1.17 round number.

GBP/USD keeps trading lower amid broad-based USD strength, with a key level of support at 1.33 being tested. A bearish continuation may be on the cards judging by the collapse in the UK vs US 10y yield spread.

USD/JPY is struggling to break through a major point of control around the 114.00, where offers keep absorbing the bids. The intrinsic valuations are fairly supportive (US stocks + US vs JP yield spread) but the flattening of the curve + decreasing vol should be concerning.

AUD/USD has defied the strength of the US Dollar as a buying campaign off 0.75 was initiated, see within the context of a bearish trend. The area of resistance circa 0.7570-7600 is now key, with the AU vs US 10y yield spread not backing further rises.

What happened?

US Nov PPI final demand YoY came at 3.1% vs 2.9% exp and 2.8% prev, with the montly reading at 0.4% vs 0.3% exp and 0.4% prev.

US Nov NFIB business optimism index printed 107.50 vs 103.80 prev.

US w/e Redbook MoM came at -0.7% vs -0.9% prev., while the yearly reading stood at 3.3% vs 3.0% prev.

US Sec Cornyn said that the GOP is very close to unveiling a tax deal

Bitcoin settles circa 18,000 in CBOE Jan contract with volumes dropping as investors in wait-and-see to get familiar with trading conditions.

EU, US, Japan prepare to take action against WTO countries flooding global markets, Reuters reported.

EU warns UK on Brexit reneging in 'furious race against time', Reuters reported.

A second letter was sent to the US Treasury Secretary by EU officials over the ongooign US tax reform as concerns grow.

UK Brexit sec. Davis finds consensus with EU's verhofstadt over the recently agreed Brexit divore bill.

UK inflation broke past the 3% mark.

Upcoming events

GMT	Event	Actual	Consensus	Previous
Tuesday, Dec 12
10:00	EUR ZEW Survey - Economic Sentiment	29.0	30.2	30.9
n/a	EUR 3-Month Letras Auction	-0.610%		-0.465%
n/a	EUR 9-Month Letras Auction	-0.414%		-0.406%
11:00	USD NFIB Business Optimism Index	107.5	104.6	103.8
11:00	ZAR Manufacturing Production Index (YoY)	2.20%	0.75%	-1.70% Revised from -1.60%
11:30	INR Cumulative Industrial Output	2.5%		2.5%
11:30	INR Industrial Output	2.2%	3.0%	4.1% Revised from 3.8%
11:30	INR Manufacturing Output	2.5%		3.8% Revised from 3.4%
13:00	PLN Net Inflation	0.9%	0.9%	0.8%
13:00	MXN Industrial Output (YoY)	-1.10%	0.45%	-1.20%
13:00	MXN Industrial Output (MoM)	-0.1%	0.7%	-0.4%
13:00	RUB Gross Domestic Product Quarterly (YoY)	1.8%		1.8%
13:00	RUB Foreign Trade	$9.832B	$9.975B	$10.222B
13:30	USD Producer Price Index ex Food & Energy (MoM)	0.3%	0.2%	0.4%
13:30	USD Producer Price Index ex Food & Energy (YoY)	2.4%	2.3%	2.4%
13:30	USD Producer Price Index (YoY)	3.1%	2.9%	2.8%
13:30	USD Producer Price Index (MoM)	0.4%	0.3%	0.4%
13:55	USD Redbook index (YoY)	3.3%		3.0%
13:55	USD Redbook index (MoM)	-0.7%		-0.9%
15:00	INR Current Account Balance $			$-14.3B
15:00	INR Balance Payment $			$11.4B
15:00	INR Trade Deficit - RBI			-41.2B
16:30	USD 4-Week Bill Auction	1.24%		1.18%
18:00	USD 30-Year Bond Auction	2.804%		2.801%
19:00	USD Monthly Budget Statement	$-139B	$-134B	$-63B
19:00	ARS Consumer Price Index (MoM)	1.4%		1.3%
19:00	EUR ECB President Draghi's Speech
21:30	USD API Weekly Crude Oil Stock			-5.481M
21:45	NZD Food Price Index (MoM)	-0.4%		-1.1%
22:15	AUD RBA's Governor Philip Lowe Speech
23:00	KRW Unemployment Rate			3.6%
23:30	AUD Westpac Consumer Confidence			-1.7%
23:50	JPY Machinery Orders (YoY)		-2.8%	-3.5%
23:50	JPY Machinery Orders (MoM)		3.0%	-8.1%
Wednesday, Dec 13
n/a	AUD HIA New Home Sales (MoM)			-6.1%
00:00	AUD RBA Assistant Governor Kent Speech
02:00	CNY FDI - Foreign Direct Investment (YTD) (YoY)			1.9%
02:30	SGD Unemployment rate			2.1%
03:00	KRW Money Supply Growth			6.7%
06:00	EUR Wholesale Price Index (YoY)		3.4%	3.0%
06:00	EUR Wholesale Price Index (MoM)		0.3%	0.0%
07:00	EUR Consumer Price Index (YoY)		1.8%	1.8%
07:00	EUR Consumer Price Index (MoM)		0.3%	0.3%
07:00	EUR Harmonised Index of Consumer Prices (YoY)		1.8%	1.8%
07:00	EUR Harmonised Index of Consumer Prices (MoM)		0.3%	0.3%
07:00	RON Industrial Production (MoM)			-0.7%
08:00	ZAR Consumer Price Index (YoY)			4.8%
08:00	ZAR Consumer Price Index (MoM)			0.3%
08:00	EUR Headline Inflation (YoY)			1.7%
08:00	EUR Headline Inflation (MoM)			0.3%
08:00	EUR Core Inflation (YoY)			2.5%
08:00	EUR Core Inflation (MoM)			0.4%
08:55	ISK CBI Interest Rate Decision			4.25%
09:00	EUR Industrial Output s.a. (MoM)		0.6%	-1.3%
09:00	EUR Industrial Output w.d.a (YoY)		3.4%	2.4%
09:00	JPY Bank of Japan Governor Kuroda Speech
09:30	GBP Claimant Count Rate			2.3%
09:30	GBP Claimant Count Change		3.2K	1.1K
09:30	GBP Average Earnings excluding Bonus (3Mo/Yr)		2.2%	2.2%
09:30	GBP ILO Unemployment Rate (3M)		4.2%	4.3%

Author

Ivan Delgado

Independent Analyst

Established in the Asian continent since 2009, Ivan studied a degree in Business at the University Pompeu Fabra (Barcelona), while also earning a postgraduate degree in Business Administration.

EUR/USD trims gains, back below 1.1800

EUR/USD now loses some upside momentum, returning to the area below the 1.1800 support as the Greenback manages to regain some composure following the SCOTUS-led pullback earlier in the session.

GBP/USD off highs, recedes to the sub-1.3500 area

Following earlier highs north of 1.3500 the figure, GBP/USD now faces some renewed downside pressure, revisiting the 1.3490 zone as the US Dollar manages to regain some upside impulse in the latter part of the NA session on Friday.

Gold climbs to weekly tops, approaches $5,100/oz

Gold keeps the bid tone well in place at the end of the week, now hitting fresh weekly highs and retargeting the key $5,100 mark per troy ounce. The move higher in the yellow metal comes in response to ongoing geopolitical tensions in the Middle East and modest losses in the US Dollar.