• Fed minutes pave the way for a December rate hike. The minutes from the Fed’s latest policy meeting paved the way for an interest rate hike in December. Most participants anticipated that based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions could well be met by the time of the next meeting. The minutes also showed that while no decision had been made, it may well become appropriate to initiate the normalization process next month. Since their last meeting, economic data have been encouraging, with the October employment report offering the latest evidence of further improvement. As long as labor market and inflation trends don’t take a turn for the worse and the US economy is not hit by some new internal or external shock, a December rate lift-off seems inevitable. At the same time, the minutes reiterated that after the first increase, the subsequent path of rate hikes is likely to be shallow and gradual. The market is still pricing around 70% chance of a hike, given that the minutes mirrored more or less the statement following the meeting. The minutes on the whole offered no new hints regarding the December meeting and as a result, USD weakened across the board. We believe that the greenback is likely to regain momentum and that the post-minutes weakness is mainly due to some profit-taking and repositioning.
• Bank of Japan keeps policy unchanged (again) The Bank of Japan left its monetary policy unchanged as was widely expected despite Japan’s recent fall back to recession. The Bank kept intact its assessment that while exports and output continue to drift lower due to the weak EM economies, Japan’s economy has continued to recover moderately. At the press conference following the decision, BoJ Governor Kuroda reiterated his upbeat view on Japan’s economy and that inflation expectations appear to be rising on the whole. With just two weeks after last month’s meeting, the Bank maintained its pledge to adjust policy if needed but sees no need to change it now as it is currently having the intended effects. USD/JPY edged lower following the decision but stayed above the 123.00 support level. A break below that round figure is needed to trust further declines.
• Today’s highlights: During the European day, the ECB will release the minutes of its latest monetary policy meeting. At this meeting, the Governing Council members decided that the degree of monetary policy accommodation will need to be re-examined at their December meeting, when the new ECB staff forecasts will be available. ECB President Draghi signaled that the possible measures officials are considering include a further cut to the already negative deposit rate. Therefore we will look into the minutes for further insight on what measures were discussed and how strong the possibility for another rate cut is. Eurozone’s current account balance is also coming out, but no forecast is available.
• In Sweden, the official unemployment rate for October is due out. The forecast is for the rate to have remained unchanged. Given that the PES unemployment rate for the same month met expectations, we see a high possibility for the official rate to remain unchanged as well.
• In the UK, the retail sales excluding volatile items for October are to be released. Expectations are for a -0.5% mom decline, a turnaround from +1.7% mom the previous month. However, since retail sales account for less than 6% of GDP and given the recent improvements in the domestic labour market, we expect consumption to remain supported. Thus, although this could hurt the pound somewhat at the release, we keep our upbeat view regarding the UK’s economic outlook for Q4.
• From the US we get initial jobless claims for the week ended on Nov 13. Even though the forecast is for the figure to decrease a bit, the 4-week moving average is expected to edge slightly higher.
• We have six speakers scheduled on Thursday’s agenda. From the ECB, we have Executive Board members Benoit Coeure and Peter Praet, as well as Governing Council member Jens Weidmann. From the Fed, we have Atlanta Fed President Dennis Lockhart and Fed Vice Chairman Stanley Fischer scheduled. Riksbank Governor Stefan Ingves also speaks.
The Market
EUR/USD rebounds following the Fed minutes
• EUR/USD traded higher yesterday after the Fed meeting minutes didn’t drop any extra hints about a December rate hike. The pair broke above the resistance (now turned into support) territory of 1.0685 (S1) and I would now expect it to continue higher and perhaps challenge the 1.0760 (R1) resistance zone. Our short-term momentum indicators detect upside momentum and they support the case for more short-term advances. The RSI rebounded from near its upside support line and emerged above its 50 line, while the MACD, although negative has bottomed and crossed above its trigger line. What is more, there is still positive divergence between these indicators and the price action. In the bigger picture, as long as the pair is trading below 1.0800, the lower bound of the range it had been trading since the last days of April, I would consider the longer-term outlook to stay negative. I would treat yesterday’s rebound or any possible extensions of it as a corrective move before sellers decide to shoot again. • Support: 1.0685 (S1), 1.0625 (S2), 1.0570 (S3) • Resistance: 1.0760 (R1), 1.0800 (R2), 1.0830 (R3)
USD/JPY hits resistance at 123.75 and retreats
• USD/JPY tried to trade higher yesterday but hit resistance at 123.75 (R1) and following the Fed meeting minutes, it pulled back. As long as the rate is trading above the uptrend line taken from the low of the 15th of October, I would consider the short-term picture to remain positive. However, for now I see signs that the current setback may continue for a while, perhaps even below the aforementioned trend line. The RSI has turned down and could fall below its 50 line soon, while the MACD, although positive, has topped and fallen below its trigger line. Moreover, there is negative divergence between both these indicators and the price action. A break below the 123.00 (S2) barrier is likely to trigger more bearish extensions and perhaps open the way for the 122.55 (S3) zone. As for the broader trend, the break above 121.60 signaled the upside exit of the sideways range the pair had been trading since the last days of August and turned the longer-term picture back positive. As a result, I would treat any future near-term declines that stay limited above that area as a corrective phase. • Support: 122.20 (S1), 122.00 (S2), 121.60 (S3) • Resistance: 122.55 (R1), 123.00 (R2), 123.40 (R3)
GBP/USD breaks above 1.5250 following the Fed minutes
• GBP/USD traded higher yesterday following the Fed minutes, breaking above the key resistance (now turned into support) zone of 1.5250 (S1) to find resistance fractionally below the 1.5300 (R1) hurdle. In my view, the move above the 1.5250 (S1) zone has turned the short-term picture somewhat positive and thus, I would expect a clear move above 1.5300 (R1) to open the way for our next resistance zone of 1.5355 (R2). Looking at our short-term oscillators, I see that the RSI rebounded from its 50 line and now stands slightly below its 70 line, while the MACD lies above both its zero and trigger lines. These indicators detect positive momentum and corroborate somewhat my view that Cable could continue higher, at least in the short run. Switching to the daily chart, I see that the rate remains below the 80-day exponential moving average, which has turned down. Therefore, I still see a cautiously negative longer-term picture and I would treat the short-term uptrend as a corrective phase of a possible medium-term downtrend. • Support: 1.5250 (S1), 1.5190 (S2), 1.5155 (S3) • Resistance: 1.5300 (R1), 1.5355 (R2), 1.5400 (R3)
DAX futures break above 10970
• DAX futures traded higher yesterday breaking above the resistance (now turned into support) barrier of 10970 (S1). I would now expect the index to challenge the next obstacle at 11100 (R1). A clear move above that barrier is possible to open the way for the 11260 (R2) area. Shifting my attention to our momentum studies, I see that the RSI, already above 50, has turned up and is now headed towards its 70 line. The MACD, already above its trigger, has turn positive and points north. These studies reveal positive momentum and amplify the case that DAX is likely to continue higher, at least in the short run. On the daily chart, the break above the psychological zone of 10500 on the 22nd of October signalled the completion of a double bottom formation. What is more, Monday’s rebound from that psychological area adds to my view that the medium-term path remains positive and that the retreat started on the 6th of November was just a corrective phase. • Support: 10970 (S1), 10870 (S2), 10670 (S3) • Resistance: 11100 (R1), 11260 (R2), 11420 (R3)
Gold rebounds and hits 1080
• Gold also traded higher following the FOMC meeting minutes. The metal broke back above the 1072 (S1) obstacle and hit the next one of 1080 (R1). The short-term trend remains negative in my view, but I see the likelihood for the current rebound to continue for a while. A clear move above 1080 (R1) could prompt extensions towards the next resistance of 1090 (R2). Our short-term oscillators support the notion. The RSI rebounded from its 30 line and is now headed towards its 50 line, while the MACD, although negative, has turned up and crossed back above its trigger line. On the daily chart, I see that the plunge below the upside support line taken from the low of the 20th of July has shifted the medium-term outlook to the downside. As a result, I believe that the metal is poised to continue its down road in the foreseeable future and I would treat the current recovery as a corrective move before the next leg down. • Support: 1072 (S1), 1064 (S2), 1055 (S3) • Resistance: 1080 (R1), 1090 (R2), 1098 (R3)
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
