Euro surged sharply last week as the scale of ECB's additional easing announced was seen as a disappointment by the markets. Strength of the common currency was only overwhelmed by the Swiss Franc, as the underwhelming ECB announce would likely put less pressure for actions by the SNB to counter. The non-farm payroll report from US was solid and comments from Fed chair Janet Yellen also affirmed a rate hike later in December. But the greenback still ended the week generally lower as the second weakest major currency, next to the Japanese yen. It's understandable that dollar was overpowered by Euro. However, the dollar weakness against commodity currencies as well as gold is worth a mention. Volatility would likely stay high on thin trading ahead and the greenback could stay under some pressure in near term in spite of all the signs of rate hike by Fed.
To recap some of the major events last week, US non-farm payroll report showed 211k growth in jobs in November, above expectation of 198k. Prior month's figure was also revised up from 271k to 298k. Unemployment rate was unchanged at 5.0%, inline with consensus. Average hourly earnings rose 0.2% mom, inline with consensus. ISM manufacturing index dropped to 48.6 in November versus expectation of 50.5. That's the first contraction reading since the end of 2012 and was the lowest level since June 2009. And it could be one of the major reasons for the lack of post NFP strength in dollar. ISM non-manufacturing composite also dropped sharply to 55.9, missing expectation of 58.1.
ECB at its December meeting announced to cut the deposit rate by -10 bps to -0.3%, effective December 9. The main refi rate and the marginal lending rate stayed unchanged at 0.05% and 0.3% respectively. At the press conference, President Mario Draghi announced extension of asset purchases by 6 months, suggesting purchases would continue until end March 2017, or beyond if necessary. Regional and local government debt are now included as eligible assets for buying in the program. Yet, the ECB maintained the pace of asset buying at 60B euro/month. Market was disappointed by the magnitude of the easing measures. Indeed, some had anticipated a strong deposit rate cut to -0.4% and acceleration of the pace of asset purchases from 60B euro/month. More in Draghi Over-Promised, Under-Delivered. Euro Jumped to One-Month High.
BOC left the overnight rate target unchanged at 0.5%, for a 5th consecutive meeting, in December. The Bank Rate also stayed unchanged at 0.75% and the deposit rate at 0.25%.The tone delivered in the accompanying message was largely the same as the October one, though with some tweaks. Overall, the BOC remained dovish as it has been since the beginning of the year. We expect the central bank to keep its monetary stance unchanged for most of next year. More in BOC Keeps Its Powder Dry, Possibly For Most Of 2016.
RBA, as expected, left the cash rate unchanged at 2% in December. The accompanying statement contained few changes on the descriptions of the economic prospects and the monetary outlook. More notable change was seen in the housing market with the central bank acknowledging moderating pace in the growth in dwelling prices in Melbourne and Sydney. On the monetary policy decision, the RBA noted that it 'again' believed that 'the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate'. More in RBA Holds Cash Rate At 2%, Noted Growth Moderation In Melbourne And Sydney Housing Prices.
Dollar index breached 100.39 resistance briefly last week but it quickly reversed. The subsequent fall was also sharp enough to indicate short term topping at 100.51. Near term bias in the index is now on the downside and the consolidation pattern from 100.39 could have just started the third leg. Sustained trading below 55 days EMA (now at 97.85) could pave the way towards 92.62 support. In any case, near term outlook won't turn bullish before decisive break of 100.39 key resistance.
