Risk settles, AUD rallies, JPY, CHF ease, stocks, yields rebound

Summary: Fears over Omicron, the new variant that raised panic on the financial markets over the weekend subsided. One of the world’s premier biopharmaceutical companies, Pfizer, announced that it was testing a vaccine for the new variant. US President Joe Biden sought to calm Americans saying in a speech that the variant was a cause for concern, not panic, and that the US would not face shutdowns or lockdowns. Market volumes, which had thinned out due to the long US Thanksgiving weekend holiday picked up which steadied risk appetite. The VIX Index, a measure of market uncertainty which is reflected by the level of volatility dropped 11% to 22.90 (28.87 yesterday). In FX, the Dollar rebounded against the haven sought Japanese Yen and Swiss Franc. USD/JPY settled at 113.67 in late New York from 113.35 while the USD/CHF pair rose to 0.9235 (0.9195). Risk FX leader, the Australia Dollar rallied back to 0.7135 after traders sold the Battler to an overnight low of 0.7113. Sterling dipped to close at 1.3305 (1.3340). The Euro slid further against the Greenback to 1.1282 (1.1322). Against the Asian and Emerging Market currencies the Greenback finished little changed. The USD/CNH pair (Dollar-Offshore Chinese Yuan) steadied to 6.3880 from 6.3970 yesterday. The Greenback settled at 1.3700 Singapore Dollars (1.3720) while the USD/THB pair rallied to 33.70 from 33.50. Global treasury prices eased while bond yields climbed. The US 10-year note yield rose 5 basis points to 1.52% from 1.47%. Germany’s 10-year Bund rate was last at -0.32% (-0.34% yesterday). UK 10-year Gilt yields climbed 4 basis points to 0.86%.

Wall Street stocks rebounded. The DOW settled at 35,200 (34,740) while the S&P 500 gained 1.8% to 4,667 from yesterday’s finish at 4,583.

Data released yesterday saw Japan’s October Retail Sales (y/y) dip to 0.9% against forecasts at 1.1%. On a monthly basis however, Japanese October Sales beat median estimates of -1.6% to 1.1%. Italy’s October PPI rose to 20.4% from September’s 13.3%. Spain’s October Flash CPI rose to an annual 5.6%, higher than forecasts of 5.5%. UK October Net Lending to Individuals fell to GBP 2.3 billion from a previous GBP 9.8 billion and lower than estimates of GBP 9.2 billion. UK October Mortgage Approvals eased to 67,000 from a previous 73,000, lower than estimates at 71,000. Germany’s November Annual CPI preview was up to 5.2% from 4.5%, and expectations of 5.1%. Canada’s Final October Annual PPI rose to 1.3% from a previous 1.2%. US November Pending Home Sales climbed to 7.5% from a previous -2.4% and beating estimates at 0.8%. The US Dallas Fed Manufacturing Index fell to 11.8 from a previous 14.6.

EUR/USD – The shared currency eased against the US Dollar to 1.1282 from 1.1325 in subdued trade. Overnight low traded for the EUR/USD pair was at 1.1258 while the overnight peak recorded was at 1.1315.

AUD/USD – The Aussie Battler rebounded against the Greenback to 0.7132 after it was sold down to an overnight low at 0.7114. The AUD/USD pair opened at 0.7120 yesterday and traded to an overnight high at 0.7159.

USD/JPY – The Greenback rallied against the Yen as risk appetite steadied and haven demand for the Japanese currency eased. The USD/JPY pair closed at 113.67 from 113.35. Overnight, the USD/JPY pair hit a low at 112.99.

GBP/USD – Sterling settled lower against the US Dollar, at 1.3305 against its opening of 1.3340 yesterday. Concerns grew over growing infections of Omicron in the UK which saw heavy selling of the British currency. Overnight, the GBP/USD hit a low at 1.3287.

On the Lookout: Today’s month end trading will keep volumes low amidst a modest improvement in risk sentiment. The economic calendar picks up today in Asia. Japan starts off with its October Unemployment Rate (f/c 2.8% from previous 2.8%). Japanese October Preliminary Industrial Production data follows (m/m f/c 1.8% from -5.4%, y/y no f/c, previous was -2.3% - ACY Finlogix). New Zealand follows with its ANZ November Business Confidence Index (no f/c, previous was -13.4). Australia is next with its Australian October Private Sector Credit (m/m no f/c previous was 5.3%, y/y no f/c, previous was 0.6%). Australian October Building Permits (f/c -2.0% from previous -4.3% - FX Street) and finally Australia’s Current Account for Q3 (f/c AUD 27.8 billion from AUD 20.5 billion – FX Street). China follows next with its NBS November Manufacturing PMI (f/c 49.6 from previous 49.2 – FX Street), NBS Non-Manufacturing PMI (f/c 53 from 52.4 – FX Street). Japanese October Housing Starts (y/y f/c 5.2% from previous 4.3%), Japanese October Construction Orders (no f/c previous was 27.3%). Europe kicks off with Germany’s October Unemployment Rate (no f/c previous was 3.4%). France follows next with its Final GDP Growth Rate (q/q f/c 3% from a previous 1.3% - ACY FInlogix). Germany releases its November Unemployment Rate (f/c 5.3% from 5.4% - ACY Finlogix). Italian GDP Final Growth Rate follows (q/q f/c 2.6% from 2.7%, y/y f/c 3.8% from 17% - ACY Finlogix). The Eurozone Flash November Inflation Rate follows (f/c 4.4% from 4.1% - ACY Finlogix). Italy releases its November Preliminary Inflation Rate (no f/c, previous was 35). Canada kicks off North America with its Q3 GDP Growth Rate (m/m f/c 0.0% from 0.4% - Forex Factory). The US rounds up the day’s economic releases with its US Chicago November PMI (f/c 68.4 from 68.4 – ACY Finlogix), US November CB Consumer Confidence (f/c 111.8 from previous 113.8 – ACY Finlogix), US Dallas Fed Services Index for November (no f/c, previous was 20.7).

Trading Perspective: The Dollar will maintain its bid stance against all rivals as risk appetite steadies with bond yields rebounding. A popular gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) grinded higher to 96.27 from 96.07 yesterday. Omicron fears eased while Fed speak continued to target the increased uncertainty for inflation. Jerome Powell reiterated that the Federal Reserve, which he chairs, will remain committed to their price-stability goal to prevent any upward spiral in inflation. A rebound in the benchmark US 10-year bond yield to 1.52% from 1.47% as well as month end demand boosted the Greenback. Expect any Dollar pullbacks to be temporary as buying dips is still the market’s choice for now.

EUR/USD – The Euro will continue to suffer from broad-based US Dollar strength. Traders continue to push the shared currency lower. Any rebounds see fresh sellers emerge. Immediate support for the EUR/USD pair lies at 1.1260 (overnight low 1.1258) followed by 1.1230 and 1.1200. Immediate resistance on the day can be found at 1.1310 (overnight high 1.1314). The next resistance lies at 1.1340 and then 1.1370. The highs are edging down and the lows getting lower which is not a good sign for the Euro. Likely range today 1.1240-1.1310. Wouldn’t chase the bid. Sell rallies.

AUD/USD – Further US Dollar strength will see the already fragile Aussie slump further. Overnight the AUD/USD pair traded to a low at 0.7114 before steadying to its New York close at 0.7130 (0.7120 yesterday). Immediate support today lies at 0.7110 followed by 0.7080 and then 0.7050. Immediate resistance can be found at 0.7160 (overnight high 0.7159). The next resistance level is at 0.7190. Look for the Battler to drift lower in a likely range of 0.7100-0.7150 today.

USD/JPY – The USD/JPY rallied on the back of the higher US 10-year bond yield, up 5 basis points to 1.52%. An improvement in risk appetite also lifted the USD/JPY pair, which closed at 113.67, up 0.45% from yesterday’s opening at 113.35. Immediate resistance today lies at 113.95, which was the overnight high. The next resistance level is found at 114.20 and 114.50. Immediate support can be found at 113.30 and 113.00 (overnight low traded was at 112.99). Look for the USD/JPY pair to trade a likely range of 113.10-114.10. Buy dips.

GBP/USD – Sterling extended its lacklustre performance, unable to gain ground against the Greenback. Infections from the Omicron strain continued to grow which unnerved Sterling traders. Like the Euro, any recoveries in the British currency are short-lived. On the day, immediate support for the GBP/USD pair lies at 1.3285 (overnight low 1.3287). The next support level can be found at 1.3260 and then 1.3230. Immediate resistance lies at 1.3330 and 1.3360. Look for the Pound to trade a likely range of 1.3270-1.3370 today. Sell rallies.

(Source: Finlogix.com)

Have a good trading day ahead all. Happy Tuesday.