EUR/GBP: Near Key 38.2% Fibo Support Level

EUR/USD: Strong ADP bolsters expectations ahead of Friday’s jobs report

• The EUR/USD fell after strong ADP reading yesterday, but the reaction was short-lived and the rate is back above 1.0600 today.
• U.S. private employers added 216k jobs in November, well above market expectations for 165k gain. The ADP figures come ahead of the U.S. Labor Department's more comprehensive non-farm payrolls report on Friday, which includes both public and private sector employment.
• The Federal Reserve said in its Beige Book that the economy continued to expand in October and November. The survey showed that most districts expected positive outlooks, and six districts expected moderate growth in the future. According to the survey, a majority of districts reported higher retail sales and improved residential real estate activity. Manufacturing activity was mixed. Several districts cited the strong USD as a headwind while some reported robust demand. Employment continued to expand, with seven districts reporting tightening labor market conditions. Districts noted slight upward pressure on overall prices.
• Cleveland Fed President Loretta Mester said the U.S. economy needs higher interest rates although the central bank will closely scrutinize the expected changes in America's fiscal, trade and immigration policies. Mester did not specifically refer to proposals by U.S. President-elect Donald Trump to slash tax rates, boost infrastructure investment and curtail immigration. But she said changes in these policy areas appeared likely and that the U.S. central bank would have to weigh how they affect employment and inflation.
• Mester dissented at the Fed's last two policy meetings when the central bank kept interest rates steady. She voted in favor of quarter percentage point increases in the Fed's targeted range for overnight lending between banks.
• Fed Governor Jerome Powell said Federal Reserve policymakers should put less emphasis publicly on the short-term outlook for interest rate increases and more on the economics driving monetary policy and the uncertainty of forecasts.
• European Central Bank President Mario Draghi said the ECB has bought governments time with its super-easy monetary policy, yet reform efforts looks to be softening, a major worry as productivity growth is already weak, innovation is low and ageing populations will be a huge drag. In a clear sign that the ECB is not about to end its easy policies, Draghi said the bank would next week examine a combination of instruments and timeframes, like the size and time horizon of its bond purchases, to support the economy.
• The ECB meets next week in Frankfurt and is expected to announce an extension to its stimulus measures to lift growth and inflation. But many of the bank's critics argue that its policies are near their limits given years of stimulus, so more of the same will hardly do anything for growth.
• Yesterday’s fall in the EUR/USD is not being continued today and the rate is fluctuating near 7-day exponential moving average. Very strong ADP reading reduces the likelihood of significant USD rally in case of better-than-expected non-farm payroll data on Friday. In turn, we may see some profit taking on recent EUR-selling positions if Friday’s jobs report disappoints. Our short-term EUR/USD outlook remains slightly bullish.

EUR/GBP near key 38.2% fibo support level

• Sterling surged back to an 11-week high against the euro in late trade in London on Wednesday, racking up its best month since January 2009. But recent macroeconomic data from the UK were unexpectedly weak.
• A regular survey by market research firm GfK on Wednesday showed confidence among British consumers fell in November to its lowest level since just after the vote in June.
• British manufacturing PMI fell to 53.4 from 54.2 in October, undershooting expectations for a rise to 54.5. Britain's economy has performed much better than expected since June's vote to quit the EU. But a bigger test will come next year when inflation is expected to rise sharply, eating into households' spending power. The PMI's gauge of prices paid by factories for materials and energy shot up at a rate just shy of October's near six-year high, while prices of finished goods also rose sharply again. A clear majority of respondents who offered a reason for rising costs pointed to the weakness of the pound.
• Investors were also digesting the need for more capital at British bank RBS (LON:RBS) after it failed the Bank of England's latest round of stress tests.
• On the other hand, Euro zone manufacturers enjoyed their best month in November since the start of 2014 benefiting from a weaker currency and stronger demand. Manufacturing PMI for the Euro zone amounted to 53.7 in November, in line with an earlier flash estimate and ahead of October's 53.5.
• In line with our trading strategy, we used yesterday’s EUR/GBP jump to get short at 0.8575. The EUR/GBP broke below the 38.2% retrace of the 2015-2016 rise today, which is a good signal for our position. A weekly close below this level will open the way for further drop. We have lowered our stop to 0.8535.

USD/CAD: Loonie supported by OPEC deal and strong GDP data

• The Organization of the Petroleum Exporting Countries agreed on Wednesday its first oil output reduction since 2008 after de-facto leader Saudi Arabia accepted "a big hit" and dropped a demand that arch-rival Iran also slash output. The deal also included the group's first coordinated action with non-OPEC member Russia in 15 years. On Thursday Azerbaijan said it was also willing to engage in talks on cuts.
• OPEC produces a third of global oil, or around 33.6 million bpd, and the deal aims to reduce output by 1.2 million bpd from January 2017, similar to January 2016 levels, when prices fell to over 10-year lows amid ballooning oversupply.
• Oil prices, which are strongly correlated to the CAD, rose strongly yesterday. Despite the jump in prices, they are still only at September-October levels - when plans for a cut were first announced - and prices are at less than half their mid-2014 levels, when the global glut started.
• Statistics Canada said that Canadian GDP grew 0.9% in the third quarter. Expressed at an annualized rate, real GDP rose 3.5%, topping market expectations of 3.4% and picking up from a contraction in the second quarter. Last quarter brought the strongest pace of expansion since the second quarter of 2014 and exceeded the Bank of Canada's forecast for 3.2% growth.
• Growth in household final consumption expenditure was 0.6% qoq, a similar pace to the previous two quarters. Business investment on machinery and equipment fell 3.2% qoq in the third quarter
• Exports increased 2.2% qoq, following a 3.9% qoq drop in the previous period. Growth was driven by a 6.1% qoq increase in the energy sector, following a 5.1% qoq decline in the second quarter as a result of the Fort McMurray wildfires.
• Investors were encouraged also by September's stronger-than-expected 0.3% GDP growth, which suggested the fourth quarter could slow less than anticipated and give the bank room to keep rates steady. The bank acknowledged in October it had considered cutting again. Policymakers will meet next week and in our opinion a rate cut is unlikely.
• Separate data showed that Canadian producer prices rose slightly more than expected in October on higher costs for energy and petroleum products as well as vehicles. The 0.7% increase topped market expectations for a gain of 0.6%. Rising inflationary pressure also reduces likelihood of further monetary easing.
• Higher oil prices and lowering likelihood of further monetary easing in Canada should support the CAD. The potential for further appreciation of the USD in the near term is limited, as Fed hike in December along with roughly two rate hikes next year have been already priced in. What is more, expectations for Friday’s U.S. non-farm payrolls are much higher after ADP report handily beat the forecast consensus yesterday. That is why we should expect much stronger reaction in case of a negative surprise in Friday’s jobs report.
• We opened USD/CAD short yesterday. Today’s close below 7-day ema (currently at 1.3440) would strengthen the near-term bearish structure. The nearest support level is 23.6% fibo of May-November upward move at 1.3320.

Source: GrowthAces.com - Daily Forex Trading Strategies