London Forex Report
Yesterday’s raft of Fed speakers reinforced the case for a December rate hike took center stage. Fed Chair Yellen testimony to the Economic Club of Washington cautioning too long a delay in rate hike may inadvertently push the economy into recession is a clear signal of a December rate liftoff. While the Fed Chair said she expects continuous moderate growth in the US economy to be fast enough to boost both employment and inflation, below target inflation appears to be the main concern holding back the pace of tightening. This further reaffirms expectations that subsequent hikes after the initial liftoff will be very gradual. USD Index retreated strongly from intraday high and narrowed gains to just 0.2% at 99.99, in line with Fed Chair Yellen’s suggestion that rates would rise more gradually.
EUR/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: EUR dropped to its lowest against USD in more than seven months on Wednesday after Federal Reserve Chair Yellen commented on rate hike. EUR/USD traded as low as 1.0549, the lowest since mid-April. However, EUR recovered most of its previous loss due to reduced risk appetite and it is now trading at around 1.06 handle. Today’s biggest event will be the ECB rate decision and press conference, where markets widely expect ECB Draghi will enlarge ECB easing policy.
Technical: While 1.0680 caps intraday upside corrections, bears target a test of 1.05 next ahead of an assault on year to date lows. Only a close above 1.07 eases immediate downside pressure.
Interbank Flows: Bids 1.0550 stops below. Offers 1.07 Stops above.
Retail Sentiment: Bullish
Trading Take-away: Sidelines
GBP/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: GBP fell sharply against the USD post the release of poor construction PMI, and bottomed at 1.4893, the lowest level since April 13. UK’s construction PMI slowed sharply in November from 58.8 to 55.2, surprising markets significantly to the downside in which the growth in areas of residential, engineering, and commercial construction all slowed in November.
Technical: While 1.50 caps intraday upside bears target a test of 1.4840 as the next downside objective, only above 1.5150 eases immediate downside pressure.
Interbank Flows: Bids 1.49 stops below. Offers 1.5080 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
USD/JPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: USD hit two-week high against the JPY of 123.66 after Yellen‘s hawkish speech. Afterward, the yen recovered most of its previous loss and it is now trading at around 123.20> US November ADP employment change was 217k, much better than the market expectations 190k. The impressive ADP has given some positive hints on non-farm payroll due this Friday • Today we will have Japan Nikkei Composite PMI and Services PMI. As for overseas, markets are looking forward to ECB meeting and US ISM data.
Technical: While 122.50/30 supports downside reactions, market structure remains bullish to test 2015 highs next. A failure at 122 opens a test of 121.40 support next ahead of pivotal 120.
Interbank Flows: Bids 122 stops below. Offers 124 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
EUR/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Lower than expected European core CPI, USD strength and mounting expectation of ECB to move today. ECB meets later today expectations are running high for ECB to do more.
Technical: While 131.30 caps upside reactions expect a sustained break below 130 to confirm a retest of 2015 lows. Only a close above 132.50 eases immediate bearish pressure.
Interbank Flows: Bids 129.50 stops below. Offers 131.00 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
AUD/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: AUD held near seven-week highs yesterday after GDP figures showed solid economic growth last quarter, supporting views that interest rates will not be cut in the near term. Australia’s economy grew a brisk 0.9 percent in the third quarter, marking a remarkable 24th year without a recession while the annual growth of 2.5 percent exceeded most developed nations and beat forecasts of 2.4 percent.
Technical: While .7170/50 remains the bid zone expect grind higher to test .7350 area next, only a close below .7150 concerns near term bullish bias.
Interbank Flows: Bids .7150 stops below. Offers .7350 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
USD/CAD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish
Fundamental: CAD rose against the USD after the Bank of Canada held interest rates steady but used less dovish language in its policy statement than expected. However, the currency had weakened as crude oil prices retreated after a rise in US inventories added to the global surplus and investors worried that OPEC would not cut output in this week’s meeting .
Technical: Bulls have the ball while 1.3280/60 supports intraday downside. A close below 1.3220 would ease the near term bullish bias and suggest a broader correction is underway.
Interbank Flows: Bids 1.3250 stops below. Offers 1.34 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
