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


• 17.12.2021 02:00 pm
#stocks

Summary: It was all happening in the wonderful world of FX, initiated by a surprise rate hike from the Bank of England. Sometimes known as “The Old Lady of Threadneedle Street”, the Bank’s Monetary Policy Committee voted 8-1 to increase its Official Bank Rate by 15 basis points to 0.25%. The European Central Bank kept rates on hold as expected but confirmed that its Pandemic Emergency Purchase Program (PEPP) will end in March 2022. The Swiss National Bank maintained its expansionary monetary policy, keeping its SNB rate at -0.75%. At the other end of the spectrum, Turkey’s central bank cut its main interest rate by 1% to 14%, pushing the Turkish Lira to a new record low against the US Dollar to USD 15.74. In late New York trade, the USD/TRY settled at 15.70, up 5.98% from yesterday. After soaring to an overnight high at 1.3374, Sterling (GBP/USD) eased to finish at 1.3305 (1.3235 yesterday). The Euro (EUR/USD) was last at 1.1322 (1.1270), up 0.29%. The Dollar Index (DXY), a popular gauge of the Greenback’s value against a basket of 6 major currencies, fell 0.48% to 96.05 (96.55). Against the Swiss Franc, the US Dollar slid 0.54% to 0.9195 from 0.9263 yesterday. Elsewhere, the Australian Dollar (AUD/USD) saw modest gains, settling at 0.7168 (0.7140) while the Kiwi (NZD/USD) rose to 0.6783 (0.6755). Overnight the Aussie Battler soared to a high at 0.7224 after the Australian economy added a surprising 366,000 jobs, beating estimates at 205,000. Apart from the Turkish Lira, the US Dollar was mostly lower against the Asian and Emerging Market currencies. USD/THB (Dollar-Thai Baht) dipped to 33.41 (33.50) while the USD/CNH (Dollar-Offshore Chinese Yuan) settled at 6.3723 (6.3735).
Wall Street stocks finished mixed. The tech heavy NASDAQ tumbled 2.5% to 15,878 (16,195). The S&P 500 was little changed at 4,675 from 4,677 yesterday. Global bond yields were mixed. The US 10-year treasury yield closed at 1.43% from 1.47% yesterday. Germany’s 10-year Bund yield was last at -0.36% (-0.37%). The UK 10-year Gilt yield was up two basis points to 0.75%.
Data released yesterday saw Australia’s CBA Manufacturing PMI at 57.4, just above estimates at 57.1. Japan’s November Trade Deficit climbed to -JPY 0.49 trillion from a previous -JPY 67.4 billion, missing estimates at -JPY 675 billion. Australia’s November Employment saw a rise of 366,100 jobs, beating forecasts at 200,000 jobs. It was the biggest one month increase recorded. The Unemployment Rate eased to 4.6% lower than estimates of 5%. French Flash December Manufacturing PMI fell to 54.9 from a previous 55.9. Germany’s Flash December Manufacturing PMI rose to 57.9 from 57.4. Germany’s Flash Services PMI dipped to 48.4 from a previous 52.7. UK Markit Manufacturing PMI matched estimates at 57.6. UK Markit Services PMI slid to 53.2 from 58.5, missing estimates at 57.5.

• GBP/USD – Sterling soared to an overnight and 3-week high at 1.3374 following the Bank of England’s surprise 0.15 bp rate rise. The British Pound eased in late New York trade to finish at 1.3305, up 0.32% from yesterday’s open (1.3235).
• EUR/USD – the Euro rallied for the second day running, up 0.29% overnight to 1.1322 (1.1270 yesterday). Overnight, the shared currency traded to a high at 1.1360 after the ECB moved to introduce changes to its QE program. EUR/USD then retreated after traders viewed the move as not hawkish enough.
• AUD/USD – The Aussie Battler settled at 0.7168 from 0.7140 on the mostly softer US Dollar.
  Trading conditions thinned heading into the holiday “silly” season with less liquidity and dominated by position squaring. Which favoured the Aussie.
• USD/JPY – Broad-based USD weakness pushed this currency pair lower to 113.65 from 114.05 yesterday. Overnight, the USD/JPY traded to a low at 113.56. The drop in the US 10-year bond yield weighed on the Dollar against the Yen.

On the Lookout: Today’s economic data calendar is light. The Bank of Japan has its monetary policy meeting later today. The BOJ is not expected to yield any surprises. European data releases kick off with Germany’s November PPI (m/m f/c 1.4% from 3.8%; y/y f/c 19.9% from 18.4%) – ACY Finlogix). Up next is the UK’s November Retail Sales (m/m 0.8% from 0.8%; y/y 4.2% from -1.3% - ACY). UK November Retail Sales ex-Fuel (m/m f/c 0.8% from 1.6%; y/y f/c 2.4% from -1.9% - ACY). Germany follows with its IFO December Business Climate (f/c 95.3 from 96.5). The Eurozone is next with its Final November CPI (m/m f/c 0.5% from 0.8%; y/y f/c 4.9% from 4.1% - ACY). Eurozone November Core CPI (y/y f/c 2.6% from 2%). The Eurozone also releases its October Construction Output (y/y no f/c, previous was 1.5%). Canada releases its October Budget Balance (no f/c, previous was -CAD 11.41 billion – ACY Finlogix).

Trading Perspective: Today is Friday, the last day of this year’s full trading day. Next week, liquidity will lessen, and markets will thin out into the Christmas holidays. The DXY extended its slide overnight after rallying yesterday to a November high at 96.91, closing at 96.05. The actions from the Bank of England and the ECB boosted Sterling and the Euro against the Greenback. Speculative long Dollar positions began their unwind, and we can expect more today.

• EUR/USD – the embattled Euro found some respite against the Greenback on position squaring. The ECB winded down their QE, left rates on hold and upgraded inflation forecasts. However, ECB President Lagarde said that it was unlikely they would raise rates in 2022. The Euro closed at 1.1322 (1.1270 yesterday). Immediate resistance lies at 1.1360 (overnight high). The next resistance is found at 1.1390 and 1.1410. Immediate support can be found at 1.1300, 1.1280 (overnight low) and 1.1250. Look for consolidation today. Short covering into Christmas will keep the EUR/USD pair supported. Likely range today, 1.1280-1.1380.
• AUD/USD – a robust Employment report combined with a softer US Dollar boosted the Aussie Battler to finish at 0.7168 from 0.7140 yesterday. Overnight the AUD/USD pair traded to a high at 0.7224. Immediate resistance today lies at 0.7190, 0.7220, and 0.7250. Immediate support can be found at 0.7140 (overnight low traded was 0.7145), 0.7110 and 0.7080. The speculators are still short in the Aussie while sentiment remains bearish. Likely range today 0.7140-0.7240. Preference is to sell rallies.
• GBP/USD – Sterling had a strong rally immediately after the Bank of England hiked rates. It was short-lived and the GBP/USD pair slid from its highs to close at 1.3305 (1.3235 yesterday). Overnight high traded was at 1.3374. Immediate resistance lies at 1.3340 followed by 1.3370 and 1.3400. Immediate support can be found at 1.3270 and 1.3240. Look for further choppy trade in a likely range today of 1.3230-1.3330. Best strategy today is to the range, shag.

(Source: Finlogix.com)

• USD/JPY – The Greenback slid against the Japanese Yen weighed by the drop in US bond yields. Overnight, the USD/JPY pair traded to a high at 114.25 before easing to finish at 113.65 in New York. For today, immediate resistance can be found at 113.95 followed by 114.15 and 114.45. Immediate support lies at 113.55 (overnight low 113.56). The next support level is found at 113.25 and 112.95. Look for consolidation in a likely range today between 113.40-114.40. We could see some fireworks should the Bank of Japan surprise. Highly unlikely, but never say never in FX!

Thank God it’s Friday! Have a good one ahead all. Am off next week for the holidays. Wishing you all a joyous, safe, sound Christmas, and a blessed 2022.

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