EUR/USD: Risk Is Growing For Moves Towards 2015 Low
- New orders for U.S. manufactured capital goods rebounded in October, driven by rising demand for machinery and a range of other equipment, the latest indication of an acceleration in economic growth early in the fourth quarter.
- The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.4% after declining 1.4% in September. These so-called core capital goods orders have now increased in four of the last five months. Shipments of core capital goods rose 0.2% last month after a 0.4% gain in September. Core capital goods shipments are used to calculate equipment spending in the GDP measurement.
- In a separate report, the University of Michigan said its consumer sentiment index rose to 93.8. That put the index 6.6 points above the October reading. The University of Michigan said the post-election surge in optimism was widespread, with gains recorded among all income and age subgroups and across all regions of the country.
- The reports joined bullish data on housing starts, home and retail sales, as well as firming inflation in painting an upbeat picture of the economy at the start of the fourth quarter. The Atlanta Federal Reserve is forecasting GDP rising at a 3.6% annual rate in the fourth quarter. The economy grew at a 2.9% pace in the July-September period.
- Against the backdrop of the improving economy, the Fed is likely to hike interest rates at its December 13-14 policy meeting. Investors are now pricing in a nearly 100% probability of a December Fed rate increase and some investors expect more hikes next year if economic momentum is sustained.
- The minutes released on Wednesday back the consensus view on Wall Street that the Fed is poised to raise rates in December. Policymakers left borrowing costs unchanged earlier this month, just days before Republican Donald Trump triumphed in the November 8 presidential contest. Voting members of the Fed's rate-setting committee saw equal risks the economy would overshoot or undershoot their forecasts for continued growth and a tightening labor market.
- Seventeen policymakers participated at the November policy meeting, of whom 10 had a vote. Among the wider group of participants, most said it "could well become appropriate" to raise rates "relatively soon," according to the minutes.
- Fed officials have already downplayed the significance of Trump's election for near-term policy decisions, although they have warned the Fed could raise rates more quickly if the federal budget deficit widens under Trump.
- U.S. markets are closed today for the Thanksgiving holiday.
- The dollar rose against a basket of currencies and prices for U.S. government debt fell, with two-year note yields hitting six-and-a-half year highs.
- German Ifo economic institute said its business climate index was unchanged at 110.4 in November after a slight downward revision to 110.4 from 110.5 previously reported in October. The reading points to annual GDP growth picking up from 1.7% in the third quarter to more than 2% in the fourth quarter.
- The risk is growing for EUR/USD moves towards the 2015 1.0457 low. The long black candlestick on Wednesday adds to the downside bias and more losses are likely in the coming sessions.
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