JPY extends outperformance, AUD - Slip-Slidin’ away, DXY steadies

US Stocks Accelerate Slide, US Reports First Omicron Case

Summary: FX steadied while equity markets accelerated their downward slide after the United States reported its first Omicron case yesterday. Doctor Anthony Fauci, the US chief medical adviser confirmed that it was a citizen who arrived recently from South Africa and returned to California. Meantime, Fed Chair Jerome Powell repeated that the risk of persistent higher inflation has clearly risen. The US yield curve flattened as rate traders continued to bet on the likelihood of a Fed rate increase in July 2022. Vaccine makers and medical agencies reiterated that current vaccines should continue to provide protection against Omicron and other new variants. The Japanese Yen extended its outperformance, advancing 0.40% against the US Dollar, the USD/JPY pair settling at 112.85 vs 113.12 yesterday. A favourite gauge of the Greenbacks value against a basket of 6 major currencies, the Dollar Index (DXY) steadied to close at 96.00 from 95.95. On the other side of the FX spectrum, the Australian Dollar (AUD/USD) continued to underperform, slipping 0.27% to 0.7105 in late New York (0.7123 yesterday). The Euro (EUR/USD) eased to 1.1312 (1.1324) while Sterling (GBP/USD) was last at 1.3272 from 1.3290, down 0.16%. In the EMFX space, the Greenback rose above the 16.00 resistance level against the South African Rand for the first time in over a year. USD/ZAR settled at 16.0105 from 15.9400 yesterday. Emerging Market currencies continued their underperformance as investors remained risk averse.

Wall Street stocks accelerated their 2-day slide. The DOW was last at 34,243 from 34,525 while the S&P 500 slid 0.96% to 4,540 (4,572). Global bond yields were little changed. The benchmark US 10-year Treasury note closed with a rate of 1.43% (1.44% yesterday). The two-year US bond yield rose to 0.56%, from 0.52%. Germany’s 10-year Bund yield was unchanged at -0.35%.

Data released yesterday saw Australia’s AIG Manufacturing Index climb to 54.8 from 50.4. New Zealand’s Building Permits in October fell -2.0% from a previous -1.9%. Japan’s October Annual Capital Spending fell to 1.2% from a previous 5.3%, missing estimates at 1.6%. Australia’s Q3 GDP bettered expectations at -1.9% against -2.7%. China’s November Caixin Manufacturing PMI dipped to 49.9 from a previous 50.6, and lower than forecasts at 50.5. The UK’s November House Price Index rose 0.9%, beating estimates at 0.4%. Germany’s October Retail Sales fell -0.3%, lower than estimates of 1.0%. The Eurozone’s Markit PMI in November was at 57.4 against expectations of 57.6. UK November Manufacturing PMI was at 58.1 from forecasts at 58.2. Canada’s October Building Permits rose 1.3%, bettering estimates at -1.1%. US ISM Manufacturing PMI climbed to 61.1 from a previous 60.8.

• USD/JPY – Japan’s haven sought Yen continued to attract buyers in the risk averse environment. The USD/JPY pair slid to settle at 112.85 from 113.12 opening yesterday. Overnight low traded for the USD/JPY pair was limited though to 112.67 in subdued trade.
• AUD/USD – the Aussie Battler continued to underperform the majors, sliding 0.27% to finish at 0.7105 from yesterday’s open at 0.7123. Overnight the AUD/USD pair initially soared to a high at 0.7173 as stocks rose. In choppy trade the Aussie then began its slide lower.
• EUR/USD – slip-sliding away, the Euro eased further against the US Dollar to 1.1312 in late New York trade. Yesterday, the EUR/USD pair opened at 1.1325, initially rallying to an overnight high at 1.1360 before falling away. Overnight low recorded so far was at 1.1303.
• GBP/USD – Sterling settled lower against the Greenback to 1.3272 from 1.3290. Broad-based US Dollar strength and risk aversion weighed on the British currency. Overnight, the GBP/USD pair traded to a low at 1.3194 before rebounding to its New York close.

On the Lookout: Traders and investors now have their sights on tomorrow’s release of the US November Payrolls report. Ahead of that though, today’s economic calendar kicked off with New Q3 Zealand’s Trade Index which resulted in a fall to 0.7% I from a previous 3.3%, and lower than median estimates at 2%. The Kiwi (NZD/USD) was little changed at 0.6807 from its 0.6808 opening earlier. Australia follows with its October Trade Balance (f/c Surplus of +AUD 11.25 billion from +AUD 12.24 billion), Australia’s October Retail Sales (no f/c previous was 1.3% - ACY Finlogix). Japan follows with its November Consumer Confidence Index (f/c 40.3 from 39.2 – FX Factory). Switzerland kicks off European data with its October Retail Sales (y/y f/c 2.2% from 2.5%). The Eurozone follows with its October Unemployment Rate (f/c 7.3% from 7.4%), Eurozone October PPI (m/m f/c 3.6% from 2.7%). The US rounds up today’s report with its Weekly Unemployment Claims (f/c 238,000 from 199,000).

Trading Perspective: Markets will remain on edge following the latest news of an Omicron infection in the US, its first case. Traders will also focus on central bank speak after Fed Chair Jerome Powell reiterated that the risk of persistent inflation has clearly risen. According to latest reports, Powell also said that wages have moved up significantly. This takes precedence heading into tomorrow’s US Payrolls report, which includes wages and is a measure of consumer inflation. Given these factors, the Greenback will remain underpinned overall.

• AUD/USD – slip-sliding away, the Australian Dollar continues to get a battering from all fronts. Broad-based US Dollar strength, a risk-off stance, and weaker EMFX will continue to weigh on the Aussie Battler. Immediate support lies at 0.7100. A clean break of 0.7100 support sees 0.7070, and below that, 0.7040. Immediate resistance is found at 0.7130, 0.7160 and 0.7190. The overnight high traded was at 0.7173. Look for further choppy trade in a likely range today of 0.7060-0.7160. Selling rallies is still the way to go with the Aussie, 0.70 cents is on the horizon. But in the short term, beware of a pullback higher heading into tomorrow’s US Payrolls report.

(Source: Finlogix.com)

• EUR/USD – After short-covering took the shared currency higher against the Greenback to 1.1360 (overnight peak), the Euro slid back down quickly. Overnight low traded for the EUR/USD pair was at 1.1303. The EUR/USD pair closed at 1.1312. It remains heavy. Immediate support lies at 1.1300 followed by 1.1270. On the topside, resistance can be found at 1.1330 and 1.1360 (overnight high 1.1360). Likely range today, 1.1280-1.1340. Trade the range shag on this puppy today.
• USD/JPY – the Greenback slid 0.4% lower against the Yen to 112.85 from 113.12 yesterday. The Japanese Yen was the only major currency to gain versus the Greenback. It’s haven status continued to find buyers of the Japanese currency. Immediate support on the day lies at 112.65 (overnight low 112.67). The next support level is found at 112.35. Immediate resistance can be found at 113.10, 113.40 and 113.70 (overnight high 113.63). Expect Japanese importers to be supporting the bid today in a likely range of 112.70-113.70. Preference is to buy dips today.
• GBP/USD – like the Euro, the British currency fell under the weight of a broadly based stronger US Dollar. GBP/USD finished marginally lower at 1.3272 from 1.3290. The overnight low traded was at 1.3271 which puts immediate support for GBP/USD at 1.3270. The next support level can be found at 1.3240 and 1.3210. On the topside, immediate resistance lies at 1.3300, 1.3330 and 1.3360. The overnight high traded was at 1.3352. Not getting bearish on the British currency down here. Prefer to buy dips in a likely range today of 1.3260-1.3360 range today.

Have a top trading Thursday all.