DXY dips into key central bank policy meets this week

GBP, CHF, AUD Rally, EUR Flat, Bond Yields Steady

Summary: The Dollar Index (USD/DXY) dipped 0.23% to 96.05 (96.25 Friday) despite a higher US inflation report compared with the previous month. On an annual basis the US November Headline CPI rose to 6.8% from 6.2%. It was this largest annual gain in 39 years. While the key inflation gauge was higher than the previous month, it was in line economist’s median expectations at 6.8%. Markets settled in Friday afternoon New York trade ahead of key central bank policy meetings this week. The Euro edged higher against the Dollar to finish at 1.1317 (1.1290) while Sterling rallied 0.3% to 1.3270 from 1.3212 on Friday. The Australian Dollar bounced off Friday’s open at 0.7145 to the Greenback to finish at 0.7172, up 0.24%. New Zealand’s Kiwi finished at 0.6800 against the USD from 0.6790 Friday. Against the Japanese Yen, the Dollar was little changed at 113.37 (113.44). The Greenback was steady against most Asian and Emerging Market currencies. The USD/SGD (US Dollar- Singapore Dollar) pair eased to 1.3640 from 1.3647 while USD/THB (Dollar-Thai Baht) closed at 33.65 (33.60).
US Bond Yields were steady. The key 10-year treasury note rate closed unchanged at 1.48%. Germany’s 10-year Bund yield was last at -0.35% (-0.36%). The UK 10-year Gilt rate closed at 0.74% from 0.75% while Japan’s 10-year JGB yield was unchanged at 0.04%.

Wall Street stocks rallied. The DOW finished up 0.66% to 35,977 (35,777) while the S&P 500 settled at 4,712 from 4,677, a gain of 0.92%.

Data released on Friday saw Japan’s Annual November PPI climb to 9.0%, beating estimates at 8.5%. Germany’s November CPI (m/m) matched forecasts at -0.2% and a previous 0.5%. The UK October Trade Balance improved to -GBP13.9 billion against median expectations of -GBP 14.5 billion. UK October GDP (m/m) dipped to 0.1% from 0.6%, missing estimate at 0.4%. UK October Industrial Production (m/m) eased to 0.0%, lower than median expectations at 0.2%. Italy’s October Industrial Production (m/m) slid to -0.6% from a previous 0.1%, and lower than estimates at 0.3%. US Annual Core CPI rose to 4.9% in November from October’s 4.6%, matching median forecasts at 4.9%. The US University of Michigan December Consumer Sentiment Index climbed to 70.4 from a previous 67.4.

• EUR/USD – the Euro rebounded off Friday’s open at 1.1290 to 1.1317 at the close of New York trade. Overnight, the EUR/USD pair traded to a high at 1.1324 before easing. Speculative short Euro bets lifted the shared currency in subdued trade on Friday ahead of this week’s ECB and Fed policy meetings.
• AUD/USD – the Aussie Battler bounced back in true Battler style on short-covering to 0.7172 from Friday’s 0.7145. Overnight, the AUD/USD pair traded to a high at 0.7182 before settling. A week ago, the Australian Dollar was around 0.70 cents before embarking on its recovery.
• USD/JPY – against the Japanese Yen, the Greenback finished at 113.37, modestly lower from its 113.44 open on Friday. Overnight the USD/JPY pair traded to a low at 113.22. The overnight high recorded was at 113.79 in subdued Friday trade.
• GBP/USD – Sterling recovered against the Greenback to 1.3270 from 1.3212 on Friday, finishing as the best performer in FX. Like the Euro and other currencies, the rally in the British currency was fuelled by short covering. Last week, GBP/USD hit a low at 1.3159.

On the Lookout: Today’s economic data calendar is light ahead of key central bank policy meetings this week. New Zealand started off just now with its Annual October Visitor Arrivals, which fell -27.3% bettering a previous -58.1%. The Kiwi did not budge from its New York close at 0.6800. Japan follows next with its October Core Machinery Orders (m/m f/c 2.1% from 0.0%; y/y f/c 4% from 12.5% - ACY Finlogix). Up next is Japan’s Tankan Large Manufacturing Index (f/c 19 from a previous 18), Japan’s Large Non-Manufacturing Index (f/c 6 from a previous 2). Germany starts off European reports with its November Wholesale Prices (m/m f/c 1.3% from 1.6%. The US releases its November Consumer Inflation Expectations (no forecasts, previous was 5.7% - ACY Finlogix). The UK releases its Financial Stability report (4 am Sydney, 14 December).

Trading Perspective: The week ahead is the last full trading week in December before the markets thin out into the Christmas holidays. It’s huge in terms of economic data from Europe, the UK, China, Canada, and the US. The Swiss National Bank, The Bank of England, the European Central Bank, and the US Federal Reserve hold key policy meetings this week which are followed by respective press conferences. For today expect consolidation with more position adjustments in FX. While the Dollar Index (DXY) is expected to stay bid, we could see further downside retracement toward the lower end of its range at 95.50. Markets have fully discounted a quicker pace of tapering with rate hikes seen next year. While the Dollar Index (DXY) is expected to stay bid, we could see further downside retracement toward the lower end of its range at 95.50 as more long positions are unwound.

• EUR/USD – The Euro managed to rebound off its Friday opening at 1.1290 to finish at 1.1317 on Friday. Immediate resistance for the shared currency can be found at 1.1325 (overnight high 1.1324). The next resistance level for the EUR/USD pair lies at 1.1350 and then 1.1380. Immediate support lies at 1.1290 followed by 1.1260 (overnight low traded was 1.1265). Look for the Euro to trade a likely range between 1.1250-1.1330. Sell rallies the way to go.
• AUD/USD – The Battler had a good bounce off its Friday open at 0.7145 to 0.7172 at the close. Overnight the AUD/USD pair traded to a high at 0.7182. Which puts immediate resistance today at 0.7185. The next resistance level is found at 0.7205. Immediate support can be found at 0.7130 (overnight low traded was 0.7132). The next support is found at 0.7100. Look for the Aussie to trade a likely range today 0.7130-80. Prefer to sell rallies.
• GBP/USD – Sterling had a good session against the Greenback, climbing 0.3% to its 1.3270 finish from 1.3212 open on Friday. Overnight, the British currency traded to a peak at 1.3276. Immediate resistance today lies at 1.3280 followed by 1.3310. On the downside, immediate support can be found at 1.3230, 1.3200 and 1.3170. Overnight low traded was at 1.3187. Expect more choppy trade in Sterling. Likely range today, 1.3200-1.3300. Sell rallies.
• USD/JPY – The Greenback finished little changed against the Japanese Yen at 113.37. Like the previous session, the overnight high traded was at 113.79. Which puts the immediate resistance at 113.80. The next resistance is found at 114.10. On the downside, immediate support can be found at 113.20 (overnight low traded was 113.22). The next support lies at 112.90 and 112.60. The USD/JPY pair will be driven by the outcome of key central bank meetings this week.

(Source: Finlogix.com)