The US$ plumbed new 30 month lows ahead of the FOMC Meeting on Wednesday , not helped by a miss in the expectations of the November Retail Sales, although it then recovered some of its lost ground to sit roughly unchanged, with the DXY sitting at 90.50, by the time of the meeting. The EU majors were helped early in the US session by improved manufacturing/services data. Stockmarkets also slipped ahead of the Fed, but then recovered to sit pretty much unchanged heading into the Meeting. The US Retail Sales fell by 1.1% last month, a deeper contraction than the expected 0.3% decline, while the retail sales control group, which has a larger impact on US GDP and is therefore closely watched by the Fed, fell by 0.5%, well below expectations for a rise of +0.2%.
The FOMC Meeting has now just taken place and the Fed has left rates unchanged. The statement was along familiar lines, outlining the damaging effects of the pandemic which is “causing tremendous human and economic hardship across the United States and around the world” and went on to say that the Fed “is committed to using its full range of tools to support the US economy in this challenging time, thereby promoting its maximum employment and price stability goals”.
The initial effects of the Statement saw the dollar make new session highs as the DXY recovered from a low of 90.13 but then gave back some of its gains into the close, to currently sit back at 90.30 after Fed Chair Powell reminded the markets that the Fed remain very dovish on the economic outlook, while the moves in stocks were fairly subdued with the major indices flat-lining but then making some mild gains into the close, led by the Nasdaq which is 0.7% higher. Earlier in the session, stocks took support from headlines that US legislators appear to be closing in on a stimulus deal – expected to include much-needed support for businesses and unemployed Americans – after Senate Majority Leader Mitch McConnell said a “major headway” had been made in talks.
The major themes in the FX markets were seen in the Euro and Sterling, which both made a new 30 month high of 1.2211/1.3554 in early Europe because of some apparent progress in the Brexit negotiations and also because of some stronger than expected PMIs in both the UK and in the EU. The data lifted both currencies as well as their respective stock markets, where the FTSE and the Dax both made decent gains. The Chf also made new multi year highs against the US$ (0.8822) before a partial retreat ahead of the Fed Meeting, while both the Aud$ and the NZ$ reached their own multi year highs seen earlier in the week at 0.7578 and 0.7053 respectively. They have since reversed lower, now leaving these levels as strong resistance, being a daily double top in each currency.
Gold and Silver had a volatile ride although Gold has returned to be unchanged at 1855 heading into the close. Silver on the other hand, broke the resistance that we outlined yesterday and headed strongly higher, reaching 25.30 at one stage, and at 25.22 heading into the close, up by 2.9% on the session. WTI is squeezing slowly higher towards our initial 48.30 target (100 WMA), beyond which can see a run towards 50.00+. Note that Copper and Iron Ore also had strong sessions, which will provide some support for the Australian markets on Turning Higher.
With regards to the PMIs, the UK Manufacturing PMI rose to 57.3, up from 55.6 and above expectation of 55.9, a 37-month high, while the Services PMI rose to 49.9, up from 47.6, but below expectation of 50.5. The Composite PMI rose to 50.7, up from 49.0.
The Eurozone Manufacturing PMI rose to 55.5 in December, up from 53.8, above expectation of 53.0, a 55-month high, while the Services PMI rose to 47.3, up from 41.7 and well above expectation of 40.9. The Composite PMI also rose to 49.8, up from 45.3. The major individual states in the EU saw the German Manufacturing PMI rose to 58.6 in December, up from 57.8, above expectation of 56.6, a 34-month high, while the Services PMI rose to 47.7, up from 46.0, above expectation of 44.0. The Composite PMI rose to 52.5, up from 51.7. In France, the PMI Manufacturing rose to 51.1 in December, up from 49.6, above expectation of 49.6, while the Services PMI rose to 49.2, up from 48.8, above expectation of 39.3. The Composite PMI rose to 49.6, up from 40.6, a 4-month high.
Looking ahead, Thursday will be another busy day, beginning with the Q3 NZ GDP (exp +13.5%qq, -1.3%yy) and the Australian Unemployment data for November (exp 7%, +50K, PR; 65.8%) along with the Australian Federal Budget Update, and then later, the SNB and BOE Meetings will take place. While the SNB are expected to remain on hold, keeping rates unchanged at -0.75%, the outcome of the BOE Meeting is less certain. While the most likely outcome is to stand aside until the Brexit negotiations are completed by Dec 31st, especially after the BOE boosted its bond-buying scheme by £150 billion in its last meeting. With much of the UK heading back into a tier 3 lockdown, a sharp rise in the November jobless claimant figures (+64K) and the potential for a no-deal Brexit outcome he is could be very cautious indeed. On the other hand, with the Brexit negotiations still continuing, boosting optimism of a last minute deal and with Covid vaccinations well under way he could adopt a slightly more upbeat view, which would allow Cable to push higher yet. We shall see. The US will contend with the release of the Housing Starts (exp +1.55mio)/Building Permits (exp +1.55mio) for November, the Philadelphia Fed Mfg Survey (Dec, exp 20; prior 26.3) and the weekly jobless claims (Initial; 800K/Continuing; 5.6mio). Have a good day.
Economic data highlights will include:
Thur: NZ Q3 GDP, Australian Unemployment, Budget Update, SNB Meeting/Interest Rate Decision, EU CPI, BOE Meeting/Statement/Minutes/Vote Count/APP Facility, US Housing Starts, Building Permits, Philadelphia Fed Mfg Survey, Weekly Jobless Claims
Market moves, in brief:
FX: DXY 90.45 (-0.02%)
Bonds: US10Y; 0.930% (+1.82%), German 10Y; -0.567% (+7.10%), UK 10Y; 0.271% (+4.26%), Australian 10Y; 0.966% (-0.66%), NZ 10Y; 0.894% (+1.45 %), China 10Y; 3.295% (-0.14%)
Stock Indices: DJI; -0.05%, S+P; +0.3%, NASDAQ; +0.75%, EUStoxx50; +0.61%, FTSE100; +0.88%, Shanghai Composite; -0.01%, ASX200SPI: +0.14%
Metals: Gold $1860 oz (+0.50%), Silver $25.30 oz (+3.10%), Copper $3.55 lb (+0.35%), Iron Ore $155 per tonne (NYMEX) (+0.75%),
Oil: WTI $47.80 pb (+0.47%)
Trend Table: December 17, 2020
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In the trend table below, when looking at the charts for a particular FX pair, index or commodity, we are we searching for 2 or 3 consecutive boxes of the same colour which might indicate a trend – and a possible trading opportunity. Consecutive (1 & 4 hour, 4 hour/daily, daily/weekly) green boxes indicate a possible short/medium/long term uptrend; red, a possible downtrend, while blue signifies a neutral bias (range trade possibility). The boxes on the trend table merely replicate the look of the charts for the specific time-frame in MT4/5. Assets with a mixture of colours are pretty much ignored as choppy conditions seem likely to prevail.
For instance, if we see consecutive green boxes in the 1 hour and 4 hour time-frames for the FX pair “EURUSD”, that would signify the chance of a move higher in that pair over the next 24 hours. If the dailies were also green that would add to the bullish conviction from a slightly longer term perspective, and if the weeklies are also green then it would give added credence to the longer term bullish view, albeit that it might take longer for the trend to play out, so patience will almost certainly be required. The opposite would be true of red boxes, which could signify downward momentum. The strength of any possible trend depends on the time-frame, with the longer term (daily, weekly charts) obviously having a greater overall weighting than the short-term charts.
In the near term though, the 1 and 4 hour charts are what are likely to combine to indicate the possibility of a trading idea for the next few, possibly up to 24, hours.
Note that a longer term bullish view (green daily/weekly boxes) does not discount the possibility of near term dips (i.e. Red 1 & 4 hour boxes), which may indicate near term weakness and suggesting that we should be looking to buy dips for a longer term rally – and vice versa if the near term boxes are green and the longer term; red.
|1 Hour||Turning Neutral||Turning Higher?||Turning Lower?||Turning Neutral||Turning Neutral||Turning Neutral|
|4 Hour||Neutral – Turning Higher?||Turning Lower||Up||Turning Neutral||Turning Neutral||Turning Neutral|
|1 Day||Turning Higher?||Neutral – Turning Lower?||Turning Neutral||Down – Bullish Divergence||Turning Higher?||Turning Neutral|
|1 Week||Neutral – Turning Higher?||Turning Neutral||Turning Higher?||Neutral – Turning Lower?||Turning Higher||Up|
|1 Hour||Turning Lower?||Turning Neutral||Turning Neutral||Neutral – Turning Higher?||Neutral – Turning Higher?||Bearish Divergence|
|4 Hour||Turning Neutral||Neutral – Turning Higher?||Neutral – Turning Higher?||Turning Higher?||Turning Higher||Neutral – Turning Higher?|
|1 Day||Possible Basing Formation||Turning Neutral||Neutral – Turning Lower?||Neutral – Turning Higher?||Turning Neutral||Turning Neutral|
|1 Week||Neutral – Turning Lower?||Up – Overbought||Up||Down||Down||Neutral|
|1 Hour||Turning Neutral||Turning Higher||Turning Lower||Turning Neutral||Neutral||Possible Topping Formation|
|4 Hour||Turning Neutral||Turning Lower||Turning Neutral||Turning Neutral||Neutral – Turning Higher?||Neutral – Turning Lower?|
|1 Day||Possible Topping Formation||Turning Neutral||Possible Basing Formation||Neutral – Turning Higher?||Turning Neutral||Turning Higher|
|1 Week||Neutral – Turning Higher?||Turning Neutral||Turning Neutral||Turning Neutral||Turning Neutral||Turning Neutral|