On Monday demand for the dollar continued to be underpinned after a solid U.S. jobs report on Friday cemented expectations for a rate hike by the Federal Reserve at its meeting next week.
Stateside, market participants celebrated the continued expansion in the service sector with activity hitting a one-year high. In a report, the ISM said its non-manufacturing PMI rose to 57.2 last month, from 54.8 in October. That was the 82nd consecutive month of growth and its highest reading since October 2015; while analysts had only expected the index to increase to 55.4.
The data was just another piece of the economic puzzle lending support for the Fed to move ahead with a rate hike at its December 13-14 meeting.
According to the Fed Rate Monitor Tool, 100% of traders expect the Fed to raise interest rates next week.
Today in the euro zone Germany is to report on factory orders; Canada is to produce a report on the trade balance; while the U.S. is also to release trade data, along with reports on nonfarm productivity and factory orders.
The euro climbed against the dollar on Monday, jumping above $1.07 for the first time since mid-November, after hitting 21-month lows when Italy's prime minister conceded defeat in a referendum on constitutional reform and said he would resign.
The single currency initially slumped after Italian voters rejected a referendum on constitutional changes backed by the government, prompting Prime Minister Matteo Renzi to step down. Concerns over the financial health of the Italy’s ailing banking sector mounted, amid fears that Renzi’s bank bailout program could be scrapped. Italy’s banks are weighed down by bad loans and could possibly require a full-blown bailout from the European Central Bank.
But the euro quickly recovered as the referendum outcome had been largely priced in by markets.
Markets were also reassured after the ECB said last week that it was prepared to temporarily step up purchases of Italian government bonds should the referendum results drive up borrowing costs. European stock markets also retraced early losses as investors bet against immediate elections in Italy.
Pivot: 1.059Support: 1.059 1.0535 1.0505Resistance: 1.069 1.072 1.075Scenario 1: long positions above 1.0590 with targets at 1.0690 & 1.0720 in extension.Scenario 2: below 1.0590 look for further downside with 1.0535 & 1.0505 as targets.Comment: the break above 1.0590 is a positive signal that has opened a path to 1.0690.
Gold
Gold prices fell more than 1% on Monday, as strength in equity markets hit safe haven demand for the precious metal and as expectations for a U.S. rate hike this month continued to weigh.
Gold initially gained after Italian voters rejected a referendum on constitutional changes backed by the government, prompting Prime Minister Matteo Renzi to step down and sending the euro to 20-month lows. But European stock markets and the single currency rebounded as the referendum outcome had been largely priced in by markets.
The precious metal fell almost 8% in November on the back of expectations that increased U.S. fiscal spending under a Trump administration will spur economic growth and inflation, which would ultimately lead to an era of higher interest rates.
Pivot: 1172Support: 1156.5 1151 1145Resistance: 1172 1181.5 1188Scenario 1: short positions below 1172.00 with targets at 1156.50 & 1151.00 in extension.Scenario 2: above 1172.00 look for further upside with 1181.50 & 1188.00 as targets.Comment: the RSI broke below a rising trend line.
WTI Oil
Oil prices climbed to levels not seen in more than a year on Monday, building on last week’s rally triggered by the OPEC deal to curb output.
U.S. crude oil was trading at $51.94 a barrel, a level not seen since July 2015, up 25 cents or 0.48% from its last close.
U.S. crude rallied 14% last week, the largest weekly percentage gain since early 2011, and Brent rose nearly 15% for the week, after OPEC agreed on its first production cut since 2008. The deal will see the producer cartel cut output by 1.2 million barrels per day from January 2017, in a bid to reduce massive global oversupply that has pressured oil prices lower since mid-2014. The agreement also included coordinated action with non-OPEC members, who are expected to decrease production by 600,000 barrels a day.
OPEC is expected to hold a meeting with non-OPEC members in Vienna on December 10, to finalize the details of the oil output cut agreement.
Pivot: 50.25Support: 50.25 49.05 48.45Resistance: 52 52.7 53.45Scenario 1: long positions above 50.25 with targets at 52.00 & 52.70 in extension.Scenario 2: below 50.25 look for further downside with 49.05 & 48.45 as targets.Comment: a support base at 50.25 has formed and has allowed for a temporary stabilisation.
US 500
Wall Street traded higher, with the Dow hitting a new record intraday high at 19,274.85 points on Monday, as investors digested confirmation of the strength in the U.S. service sector and shrugged off the defeat of the Italian referendum for constitutional reform.
The Dow Jones gained 0.49%, the S&P 500 rose 0.70%, while the Nasdaq Composite traded up 1.07%.
U.S. equity took the Italian voters’ rejection of a constitutional referendum and the subsequent resignation of Prime Minister Matteo Renzi in stride on Monday. The outcome was largely priced in to stocks, with only the FTSE MIB in red among European indices. Italian banks also suffered over worries that the defeat could thwart plans to raise capital.
Pivot: 2080 Support: 2179 2169 2161 Resistance: 2214 2225 2245 Scenario 1: long positions above 2179.00 with targets at 2214.00 & 2225.00 in extension. Scenario 2: below 2179.00 look for further downside with 2169.00 & 2161.00 as targets. Comment: the RSI is bullish and calls for further advance.