• RBNZ cuts rate, but Kiwi appreciates At its monetary policy yesterday, the RBNZ reduced the Official Cash Rate by 25bps in accordance with expectations. However, the Kiwi appreciated as the statement was interpreted as slightly hawkish by the market. The Bank noted that they expect average inflation to settle near the midpoint of their target range with current interest rate settings. The Bank sent mixed messages about any future easing, stating both that they remain on hold for the time being and that further easing is possible if the outlook of New Zealand’s trading partners deteriorates, particularly China. They also noted that further depreciation of the Kiwi would be appropriate in order to support sustainable growth.
• Australian employment report shocks forecasters The Australian employment report stunned the market with an astounding increase in net employment of 71k jobs in November, the most in over 15 years. This was the second back-to-back month the Australian economy enjoyed huge employment gains. Alongside October’s print, this was the strongest two-month sum of net employment in 28 years. What is more, the unemployment rate fell to 5.8% from 5.9%. The solid report pushed the Aussie higher.
• Today’s highlights: During the European day, the main event will be the Bank of England monetary policy meeting. No change in policy is expected while consensus is that the vote will once again be split 8-1 with Ian McCafferty to maintain his call for a rate hike. The minutes of the meeting are released at the same time as the meeting, which makes meeting days more interesting than before, as we will receive additional insights about members’ views on the UK economic outlook and future decisions. The minutes of the last meeting showed that the strong sterling was a concern for the Bank’s outlook, stating that the past appreciation of the pound is expected to have persistent downward pressure on inflation. Furthermore, the Bank’s Governor Mark Carney has stated that the more effective the Financial Policy Committee is in stabilizing the economy, the easier it is for monetary policy to do its job, which is to achieve the inflation target. With the UK’s inflation rate currently close to zero, compared with the BoE’s target of 2%, the MPC has valid reason to want to keep rates low. Also, the UK trade deficit is expected to have increased in October.
• The Swiss National Bank also holds its policy meeting during the day. Since the ECB’s new round of stimulus fell well short of expectations and pushed the franc 1.2% down against the euro, we expect that the SNB will feel no immediate pressure to act at this meeting. This comes in contrast to a year ago, when the cost of defending the EUR/CHF floor in light of aggressive ECB easing pushed the SNB to lower rates and drop its once-cornerstone policy. Market and our expectations are for the Bank to keep its policy unchanged at this meeting, despite inflation remaining well below the Bank’s target and despite the unwanted boost in the franc against all the other G10 currencies except the euro, following the ECB’s decision. We believe that intervention in the currency market could still be the preferred instrument for the SNB to manage its currency, at least for now. Additionally, according to a survey conducted after the ECB decision, the SNB could expand its assets by approximately another 158 billion francs (or 24% of GDP) before its willingness to intervene in the currency market gets thrown to question.
• As for indicators, in Europe, the French industrial production is forecast to have fallen marginally in October.
• Both the Swedish and Norwegian CPIs are expected to have accelerated slightly in November.
• From the US, initial jobless claims for the week ended on December 4th are expected to have remained unchanged at 269k, however if the forecast is met the 4-week moving average will decline to 267.5k.
• We have one speaker during the day: Bank of England Governor Mark Carney.
The Market
EUR/USD hits 1.1050
• EUR/USD continued trading higher yesterday and managed to overcome the resistance (now turned into support) line of 1.0980 (S1). The advance was stopped fractionally below our next hurdle of 1.1050 (R1). The astonishing 500-pip rally last Thursday has turned the short-term picture positive in my view, while the move above 1.0980 (S1) has confirmed a forthcoming higher high on the 4-hour chart. As a result, I would expect a break above 1.1050 (R1) to aim for the next resistance zone of 1.1100 (R2). However, taking a look at our short-term oscillators, I see signs that the pair could correct lower before the bulls decide to take control again. The RSI has topped within its overbought zone, while the MACD shows signs that it could start topping. Switching to the daily chart, I see that the pair remains above the 1.0800 (S3) barrier, the lower bound of the range it had been trading from the last days of April until the 6th of November. As a result, although I believe the short-term picture remains positive, I prefer to take a neutral stance as far as the overall outlook of EUR/USD is concerned.
• Support: 1.0980 (S1), 1.0900 (S2), 1.0800 (S3)
• Resistance: 1.1050 (R1), 1.1100 (R2), 1.1150 (R3)
EUR/GBP trades sideways ahead of the BoE meeting
• EUR/GBP traded in a consolidative manner yesterday, staying between the support barrier of 0.7215 (S1) and the resistance line of 0.7300 (R1). The price structure on the 4-hour chart still suggest a short-term uptrend and therefore, it is possible that the bulls will regain control and aim for a test near the 0.7300 (R1) area. Shifting my attention to our short-term oscillators though, I see signs that a pullback could be looming before buyers seize control again. The RSI turned down after it hit resistance slightly above its 70 line, while the MACD has topped and fallen below its trigger line. What is more, there is negative divergence between both these indicators and the price action. Switching to the daily chart, I see that the rate has been trading within a wide sideways range between the 0.6980 support area and the resistance zone of 0.7485. As a result, although I see a near-term uptrend, I would like to hold a “wait and see” stance as far as the overall outlook of this pair is concerned.
• Support: 0.7215 (S1), 0.7165 (S2), 0.7110 (S3)
• Resistance: 0.7300 (R1), 0.7360 (R2), 0.7400 (R3)
AUD/USD surges on Australia’s strong employment report
• AUD/USD rallied today during the Asian morning after the Australian employment report showed that the unemployment rate declined to 5.8% from 5.9% and the economy added 71.4k jobs in November. However, the surge hit resistance slightly below the 0.7345 (R1) barrier and then the pair retreated somewhat. As long as the pair is trading above the uptrend line taken from the low of the 10th of November, the short-term picture looks cautiously positive. If the bulls manage to regain their momentum, I would expect them to drive the rate for another test near 0.7345 (R1). Our short-term oscillators support the notion as well. The RSI rebounded from near its 30 line and emerged above 50, while the MACD, although negative, has bottomed and crossed above its trigger line. On the daily chart, I see that AUD/USD still oscillates between 0.6900 and 0.7400 since mid-July. As a result, I would hold a flat stance for now as far as the broader trend is concerned.
• Support: 0.7280 (S1), 0.7245 (S2), 0.7170 (S3)
• Resistance: 0.7345 (R1), 0.7380 (R2), 0.7400 (R3)
Gold pulls back
• Gold pulled back yesterday after it found resistance slightly below the 1088 (R1) barrier. However, the decline was stopped above our support barrier of 1065 (S1). Given that the precious metal remains above the downtrend line taken from the peak of the 16th of November, I would consider the short-term outlook to stay cautiously positive. A break above 1088 (R1) is likely to confirm a forthcoming higher high on the 4-hour chart and perhaps challenge the psychological zone of 1100 (R2). Nevertheless, looking at our oscillators, I see signs that further setback could be on the cards before the next positive leg. The RSI slide and tested its 50 line, while the MACD, although positive, has fallen back below 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 short-term recovery or any extensions of it as a corrective phase for now.
• Support: 1065 (S1), 1057 (S2), 1046 (S3)
• Resistance: 1088 (R1), 1100 (R2), 1110 (R3)
DAX futures fall near the 10500 zone
• DAX futures tumbled yesterday, but the decline was stopped near the psychological zone 10500 (S1). In my opinion, a clear move below 10500 (S1) is needed to extend the short-term downtrend something that is likely to initially aim for our next support zone of 10280 (S2). Our momentum studies detect strong downside speed and confirm the near-term downtrend. The RSI slid after it hit resistance near 50 and tested its 30 line, while the MACD, already negative, stands below its trigger line and points south. On the daily chart, a possible move below the psychological zone of 10500 (S1) is likely to abandon the scenario that the decline started on the 1st of December is just a corrective move, and could turn the medium-term picture to the downside.
• Support: 10500 (S1), 10280 (S2), 10070 (S3)
• Resistance: 10670 (R1), 11000 (R2), 11100 (R3)
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
