Dollar soars versus EM currencies, JPY falls to 8-month low

UKOIL (Jan 2018)       ▲ 2.39%         62.07
USDTRY                     ▲ 2.38%      3.8875
USDZAR                     ▲ 1.80%    14.2240
EURUSD                    ▼ -0.43%    1.1608
XAUUSD                    ▼ -0.49%   1269.91
XAGUSD                    ▼ -1.59%   16.8430
 

Prices as of previous day instrument closing.

• Nasdaq, S&P500 and Dow close at record highs with shares of Apple and Qualcomm soaring. Nasdaq Composite outperformed its counterparts closing 0.74% higher with S&P and Dow closing 0.31 and 0.10% higher respectively. Apple shares rose more than 2% on better quarterly earnings.

• USD rose to an 8-month high against the yen, despite a less than overwhelming jobs report. The greenback recorded gains against its major rivals.

• NFP rose by 261k missing expectations for 313k. Average hourly earnings disappointed, coming in flat versus expectations for 0.2% rise. The jobless rate fell to 4.1% versus 4.2%.

• Emerging currencies struggled at the end of the week. TRY slipped almost 2.5% and ZAR fell 1.80%.   

• The Canadian dollar is a strong performer from Friday, with an upbeat jobs report despite the unemployment rate rising slightly. Cable also bounced back from Thursday’s woes and is up across the board.

• XAUUSD is slightly lower while XAGUSD is bouncing back from Friday’s lows. Crude Oil WTI is up near its year’s highs and rose above $56 per barrel.

Chart of the day:

EURTRY (4-Hour chart)

EURTRY hit an all-time high at the end of last week. The pair touched 4.5178.

Economic Calendar

The monthly Eurogroup meeting takes place in Brussels today as euro area ministers meet to discuss growth and jobs and possible steps towards completing the banking union. Speeches by central bankers are trying to brighten today’s dull economic calendar. At 9:00 CET, ECB’s Praet gives welcoming remarks at an ECB workshop titled “Money markets, monetary policy implementation and central bank balance sheets”. Fed’s Dudley will speak to the Economic Club of New York on “Lessons from the financial crisis” later today. The final readings of eurozone’s PMI are released at 10:00 CET, forecasted to remain unchanged from prior releases. Canada’s Ivey PMI is expected to rise to 60.2 from 59.6. 

Turkish Central Bank’s move to boost foreign-exchange liquidity and support the lira by reducing the amount of foreign currencies banks can park as reserves helped ease the pressure. Turkish lira was among the worst performing emerging market currencies last week. With this decision more than 5 billion liras are estimated to be withdrawn from the market.

According to Fed study, emerging markets are more vulnerable to shifts in US policy. As uncertainty over the next Fed chief was quelled last week with the announcement of Powell as next Fed Chairman, emerging market currencies came under increased pressure towards the end of the week.

Friday’s better than expected growth in US services activity lifted the greenback despite lacklustre jobs data.

USDJPY is up to new highs reaching 114.73 overnight. EURUSD bounced back above 1.16 after touching 1.1595. The Canadian dollar outperformed the greenback on Friday. USDCAD trades at 1.2763, but is currently at a well-defined classic support level off the August highs.  

Crude oil prices continue to rise, with WTI crude rising to its highest since July 2015 with signs that markets were tightening. Saudi Arabia’s crowned prince cemented his power over the weekend after an anti-corruption crackdown featured high profiles. Crude oil futures hit $56.26 per barrel.

This week, President Trump’s Asian tour will take centre stage. Trump arrived in Japan on November 5^th. The Reserve Bank of Australia will announce its cash rate target on Tuesday, with market expecting it to stay put at 1.50%. RBNZ also holds it policy meeting this week.

Technical Analysis

EURUSD (Daily timeframe)

EURUSD is testing 1.1600 handle after it failed to break above 1.1700 last week. The area around the lows of August and October between 1.1660 and 1.1670, and last week’s high of 1.1690 will serve as significant intraday resistance in the near-term. This area is also the neck line of a potential head and shoulders pattern on the pair. A significant break lower and confirmation of this set up could target the 1.13 levels in the medium-term.

USDJPY (Daily timeframe)

USDJPY broke above a key horizontal resistance level off May and July highs and hit 114.73, but has so far failed to sustain its momentum. A daily close above this key level should see the pair trade above 115 in the near-term. Upside targets are at 115.50, and 116.40 (127% Fibonacci extension of the July high to September low move). The pair should find support at 113.50.

USDCAD (Daily timeframe)

USDCAD continues to move lower after testing the 50% Fibonacci retracement of the May to September high low move. Near-term support lies at the August 31st peak at 1.2660. To the upside, 1.3000 is the level to watch, with a break of this level to give way to a continuation of its bullish trend.

USDTRY (Daily timeframe)

USDTRY broke and closed the week above October’s flash surge at 3.8530 and hit 3.8858 overnight. The test of the break out point will be significant for direction of the pair early in the week. Support at 3.80 and 3.7880 should keep the pair near its all-time highs. The key level to watch to the upside is 3.9415. A break of this level and the 4.00 handle would likely see the pair extend to 4.09 or further up towards 4.20, especially if pressure on emerging market currencies persists.