• Michael Moran, Senior Market Strategist & Trading Mentor at ACY Securities


• 10.12.2021 04:00 pm
#stocks

Summary: The Euro reversed its overnight gain, sinking 0.47% to 1.1290 from 1.1347 as cases of the new Omicron variant spread to more countries in Europe. Market perceptions of a growing divide between the cautious ECB and vigilant US Fed as inflation rises also weighed on the shared currency. While bond yields were lower, the differential between the US (1.48%) and German (-0.36%) 10-year rates widened. The Dollar Index, which measures the value of the Greenback against a basket of 6 major currencies where the Euro has the biggest weight, rallied 0.36% to 96.25 (95.90). Claims for Unemployment Benefits in the US sunk to 184,000 in the past week (from 227,000) and beating estimates at 218,000. It was the lowest US Jobless Claims number since 1969. The British Pound eased to 1.3211 (1.3237). UK Prime Minister Boris Johnson imposed tougher Covid restrictions as cases of the Omicron variant of Covid rose. Elsewhere, Canada’s Loonie (Canadian Dollar) weakened to 1.2717 (1.2647 yesterday) after oil, one of the country’s major exports, fell 2.16% (USD 70.70 from USD 72.42). The Australian Dollar (AUD/USD) declined 0.34% to 0.7145 (0.7175) on broad-based US Dollar strength. Asian and Emerging Market currencies were also lower against the Greenback as market’s switched to risk-off. Against the Offshore Chinese Yuan, the US Dollar (USD/CNH) soared to 6.3775 (6.3475). USD/SGD (US Dollar-Singapore Dollar) rebounded to 1.3650 (1.3610). The USD/THB pair (US Dollar-Thai Baht) was up 0.51% to 33.61 (33.43 yesterday). Wall Street were mixed. The DOW settled at 35,777 (35,753). The S&P 500 which tracks the performance of 500 large US corporations, slid 0.61% to 4,675 (4,697 yesterday).
Data released yesterday saw New Zealand’s Q3 Manufacturing Sales fall to -2.2% from a previous +3.9%, missing estimates at +4.2%. Japan’s BSI Manufacturing Index rose to 7.9 from 7.0. UK RICs House Prices were up 71% from a previous 70%. China’s November CPI (y/y) dipped to 2.3% against estimates of 2.5%. Chinese November PPI (y/y) was up at 12.92%, higher than estimates at 12.1%.
Germany’s October Trade Surplus eased to +EUR 12.5 billion from a previous +EUR 13.2 billion. US Final October Wholesale Inventories rose to 2.3% from a previous 1.4%, and 2.2% forecasts.

• EUR/USD – The shared currency renewed its fall after attempts for a rally failed. The Euro closed at 1.1290 from its opening yesterday at 1.1347. Overnight, the EUR/USD pair hit a low at 1.1278. The high traded for the Euro was at 1.1344. Euro crosses were mostly lower.
• AUD/USD – the Aussie Battler declined against the Greenback to 0.7145 (0.7175) on broad-based US Dollar strength. Overnight, the AUD/USD pair rallied to a high at 0.7187 before sellers emerged. The overnight low trade for the Aussie was at 0.7136.
• GBP/USD – Sterling was modestly lower against the Greenback at 1.3211 from its 1.3237 opening yesterday. Rising cases of the Omicron variant of Covid-19 forced UK Prime Minister Boris Johnson to impose tougher restrictions which weighed on the British Pound. Overnight low traded was at 1.3170.
• USD/JPY – a souring of risk sentiment saw the US Dollar dip against the Japanese Yen, closing at 113.45 in New York (113.65 yesterday). Overnight the USD/JPY pair hit a low at 113.21. On the topside, the overnight high traded was at113.81.

On the Lookout: Today’s economic calendar picks up with a heavier schedule of data to be released. The highlight is the US November Headline and Core CPI report. Prior to that, Asia kicked off with New Zealand’s BusinessNZ Manufacturing Index for November which dipped to 50.6 from 54.2. Japan follows with its Annual PPI (m/m f/c 0.3% from 1.2%; y/y f/c 8.5% from 8.0% - ACY Finlogix). Europe starts off with Germany’s November Final CPI (m/m f/c -0.2% from 0.5%; y/y f/c 5.2% from 4.5% - ACY Finlogix). The UK follows with its October Trade Balance (f/c -GBP 14.06 billion from previous -GBP 14.74 billion – FX Street), UK October Industrial Production (m/m f/c 0.1% from -0.4%; y/y f/c 2.2% from 2.9% - FX Street), UK Manufacturing Production (m/m f/c 0% from -0.1%; y/y f/c 1.7% from 2.8% - FX Street). UK October GDP is the highlight of the British data releases today (m/m f/c 0.4% from 0.6%, y/y no forecasts, previous was 5.3%).  Germany follows with its November CPI (m/m f/c -0.2% from 0.5%; y/y f/c 5.2% from 4.5% - ACY Finlogix). The US rounds up today’s data with its November Headline CPI (m/m f/c 0.7% from 0.9%; y/y f/c 6.8% from 6.2% - FX Street), US Core CPI (m/m f/c 0.5% from 0.6%; y/y f/c 6.8% from 6.2% - FX Street), and finally US Michigan Preliminary December Consumer Sentiment Index (f/c 67.1 from 67.4 – FX Street).

Trading Perspective: The DXY extended its rally to 96.25 from 95.90. While Omicron fears eased despite uncertainty about the variant, risk appetite declined. Which is a typical Friday move ahead of tonight’s crucial US CPI report and key central bank monetary policy decisions next week. The Fed is generally seen to hasten its taper of asset purchases while Europe’s latest spread of the new Covid-19 spread sees the ECB moving in the opposite direction.
For today, traders will be on the lookout for the US inflation report. Headline November CPI is forecast to have slipped (m/m) to 0.7% from 0.9%. While the Core (excluding Food and Energy), or underlying CPI is forecast at 0.5% from 0.6%. Any number lower than the above expectations will see pressure on the DXY. Speculators continued to carry long USD bets and a lower inflation report is the bigger risk. A higher Core CPI number of say 0.7% (against f/c of 0.5%) will see the market push up the DXY to 96.50 but profit-taking ahead of the weekend should limit any further gains. Its another one of those Friday, get your tin helmets on. Happy days!

• EUR/USD – Even at current levels, the Euro feels sluggish. The share currency just can’t seem to find any friends. On the day, immediate support can be found at 1.1270 (overnight low traded was 1.1278). The next support level lies at 1.1240 followed by 1.1210. On the topside, immediate resistance can be found at 1.1310, followed by 1.1340 and 1.1370. Look for the Euro to consolidate in a likely range today between 1.1270-1.1320. Selling rallies still the way to go, this puppy has got 1.10 in its sights soon.

(Source: Finlogix.com)

• AUD/USD – slip-sliding away. Broad-based US Dollar strength continues to weigh on the Aussie Battler. Market sentiment is also bearish on the antipodean currency. Overnight, the weaker EMFX also pressurised the Battler. Immediate support for the AUD/USD lies at 0.7135 followed by 0.7105 and then 0.7085. On the topside, immediate resistance is found at 0.7185 (overnight high traded 0.7187). The next resistance level is at 0.7205. Look for the Aussie to trade between 0.7110 and 0.7170 today.
• GBP/USD – Sterling eased to 1.3211 from 1.3237 yesterday. The UK releases its October GDP data today which is forecast to ease (m/m) to 0.4% from September’s 0.6%. On an annual basis, GDP for September was at 5.3%. If the GDP report is as forecast, it will be the US CPI that will move the British currency. Immediate support for the GBP/USD pair lies at 1.3170 (overnight low) followed by 1.3140. Immediate resistance is at 1.3230 and 1.3260. Look for the GBP/USD pair to trade in a likely range today between 1.3150-1.3250. Prefer to sell rallies.
• USD/JPY – While risk-off saw the USD/JPY pair ease to 113.45 (113.65) a broad-based US Dollar rally will see this currency pair higher. Overnight the US 10-year bond yield fell 3 basis-points to 1.48%. Japan’s 10-year JGB rate was unchanged (0.04%). For today immediate resistance lies at 113.80 (overnight high 113.81). The next resistance level is found at 114.10. On the downside, immediate support can be found at 113.20 (overnight low traded was 113.21). The next support level lies at 112.90. Look for USD/JPY to consolidate it a likely range today between 113.20-113.90. Just trade the range shag.

Welcome to Friday folks. It has been a long week, and the appropriate message to all is “Happy Friday!”

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