Dollar Stumbles as Fed Confidence Diminishes

Alfonso Esparza MarketPulse

The US dollar is mixed against majors on Thursday. The greenback is higher against commodity currencies (AUD, CAD and NZD) but depreciated against the rest as inflationary pressures are missing in action and Fed member comments lowered expectations of the number of rate hikes in 2019. The Fed is still highly anticipated to lift interest rates on December 19 by 25 basis points, but comments today from FOMC voting member Bosic might signal a neutral rate is closer than first thought. This shift in monetary policy could start appearing in the FOMC statement or the press conference. The biggest indicator in the market the U.S. non farm payrolls (NFP) will be published on Friday, December 7 at 8:30 am EST.

US Jobs to rise by 198,000
US wages to gain 0.3%
Canada to add 10,000 jobs

Dollar Struggling Ahead of NFP Report

The EUR/USD rose 0.32 percent on Thursday. The single currency is trading at 1.1380 after falling US yields and dovish comments lowered the probability of more rate hikes in 2019. The CME FedWatch tool even showed a drop in daily expectations for the December FOMC meeting. The market is now pricing in a 68.9 percent probability, down from 79.2 percent 24 hours ago.

The private payrolls report missed the forecast with only a gain of 179,000 jobs in November putting more emphasis on the NFP report due Friday. Employment has been the strongest pillar of the economic recovery and continues to post solid numbers but the dollar is overtly sensitive to weak data at the moment.

The ceasefire agreed to by China and the United States on trade appears to have escalated beyond tariffs. The arrest of Huawei CFO Meng Wanzhou has been condemned by Chinese officials, but given the G20 agreement to not raise tariffs in 90 days the US dollar did not appreciate as tensions once again rose between the two economic super powers.

The stock market in the US was back in action after the memorial for US president George Bush and took the full brunt of the sell off, but recovered as the Fed slowing down narrative settled in near the close.

Oil Lower as OPEC Deal Short on Details

West Texas Intermediate fell 2.23 percent on Thursday. WTI is trading at $51.66 after the Organization of the Petroleum Exporting Countries (OPEC) wrapped its meeting without specific details on the highly anticipated oil production cut agreement. Crude fell despite US crude inventories showing a sharp drop of 7.3 million barrels while only 1.3 million was forecasted. The release of the US weekly crude stock data was pushed back by a day as Wednesday was a day of mourning in the US.

A meeting between OPEC and other major producers will happen on Friday with a growing sense that the announced cuts won’t be enough to stem the fall in crude prices.

A deal appears to have been struck already, but the numbers haven’t been disclosed and not all OPEC members were happy with the agreement with final production cuts still to be finalized.

Gold Flat After US-China Trade Agreement in Focus

Gold fell slightly by 0.06 percent on Thursday. The yellow metal is trading at $1,237 after a drop in the stock market drove investors to seek the safety of gold, but later more dovish comments from the Fed reduced the appeal. Investors went back to stocks as risk appetite was higher than the concerns of an escalation of trade retaliation by the US and China.

The yellow metal rose earlier in the week as the G20 depreciated the US dollar as the trade aversion risk unwound. While the move by China and the US is seen as punting the issue by 90 days gold will continue to be part of the conversation as the two largest economies start sitting down to settle their differences.

Market events to watch this week:

Friday, December 7
8:30am CAD Employment Change
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change

*All times EDT

Author

Alfonso Esparza

MarketPulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs.

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