Market Brief
In Asia, shares took heart from Europe and Wall Street and rallied on Wednesday ahead of the Fed’s rate hike decision. European stocks bounced back yesterday after a five-day losing streak. The DAX 30 rose 3.07%, the CAC 40 gained 3.16%, the FTSE MIB jumped 3.74% and the SPI was up 2.37%. The elation was more contained across the Atlantic as the S&P 500, the NASDAQ and the Dow Jones surged 1.06%, 0.87% and 0.90% respectively. Small caps were the biggest winner as the Russell 2000 soared 1.41%. In Asia overnight, Japanese shares stood amongst the biggest winners with the Nikkei and the TOPIX index up 2.61% and 2.54% in spite of a slowing manufacturing activity. Manufacturing PMI eased to 52.5 in December from 52.6 in the previous month, while Machine tool orders contracted by 17.7%y/y in November (versus -17.9% first estimate). USD/JPY traded higher in Tokyo after rising almost 1% in the European session. The pair is currently testing the resistance lying at 122; however the strongest level standing at 122.25 will be the real test. Elsewhere, the Hang Seng jumped 1.88%, while the Shanghai and Shenzhen Comp are up 0.17% and 0.68% respectively.
EUR/USD failed once again to break the strong 1.1050 level to the upside and finally fell to 1.0910 on better-than-expected US data. Yesterday's inflation report showed that the impact of last year’s drop of crude oil prices on the year-over-year gauge starts to disappear. Headline CPI climbed to 0.5%y/y, beating market expectations of 0.4% and above previous reading of 0.2%. The core measure (excluding food and energy) came in line with consensus, printing at 2%y/y in November (1.9% in October). Separately, the Empire manufacturing index came in above consensus, printing at -4.59 versus -7 median forecast, but indicates that the sector has difficulties to adjust to a strong dollar environment.
In the United Kingdom, inflation moved above zero for the first time since July this year. Despite the small uptick in November, there is still a long way before meeting the BoE’s target. Price grew 0.1%y/y in November, matching expectation and above previous month reading of -0.1%. The core gauge climbed to 1.2%y/y from 1.1% in October. GBP/USD’s response was muted yesterday as traders focussed on the upcoming interest rate decision by the Fed. The cable fell almost 1% yesterday as rate hike speculation triggered a dollar rally. This pair stabilised around 1.5040 in Tokyo and traded range bound within a narrow range. On the upside, a resistance lies at 1.5185 (yesterday high), while on the downside a support can be found at 1.4895 (low from December 2nd).
With attention squarely on the Fed volatility should remain pretty low today as traders brace themselves for the decision. The consensus for a rate hike of 25bps has a probability of roughly 80%. However, we are little bit more bearish betting on a smaller increase of the federal fund rate. We also expect a dovish statement from Yellen.
Today traders will be watching PMIs from France, Germany and the euro zone; jobless claims and ILO unemployment rate from UK; ZEW survey from Switzerland; CPI from euro zone; retail sales from Brazil; housing starts, building permits, industrial production, capacity utilization, manufacturing PMI and FOMC rate decision from the US; GDP from New Zealand.
Currency Tech
EUR/USD
R 2: 1.1387
R 1: 1.1095
CURRENT: 1.0934
S 1: 1.0458
S 2: 1.0000
GBP/USD
R 2: 1.5529
R 1: 1.5336
CURRENT: 1.5029
S 1: 1.4857
S 2: 1.4566
USD/JPY
R 2: 135.15
R 1: 125.86
CURRENT: 121.92
S 1: 120.07
S 2: 118.07
USD/CHF
R 2: 1.0676
R 1: 1.0328
CURRENT: 0.9893
S 1: 0.9476
S 2: 0.9259