Summary: The Euro advanced against the Dollar, which rose against other Rivals. With both the Federal Reserve and European Central Bank widely expected to keep rates unchanged and maintain policy at their upcoming meetings, trading can be described as “dull.” Trade tensions remained on the US-China front with no progress reported on delaying planned tariffs on the December 15 deadline. Sterling slumped in early trade to 1.3115 from a New York close at 1.3195 as the latest YouGov poll saw Boris Johnson and his Conservative Party lead into the general election receding. Surprise gains in German and Eurozone ZEW surveys boosted the Euro to 1.1195 from 1.1062 yesterday. Against the Yen, the Dollar finished marginally higher at 108.75 (108.65). The Australian Dollar dipped to 0.6815 (0.6832) while the Kiwi was little changed at 0.6551.
Wall Street stocks ended flat. The DOW finished at 27,922 while the S&P 500 was at 3,136.00.
The US 10-year bond yield was up one basis point to 1.83%. Germany’s 10-year Bund yielded -0.30% from -0.31%. Japan’s 10-year JGB yield was at -0.03% (-0.02%).
Australia’s Q3 House Price Index beat forecasts, rising to 2.4% against expectations of 0.5%. Chinese CPI matched forecasts at 4.5%. Germany’s ZEW Economic Sentiment Index jumped to 10.7 from a previous -2.1 and a median forecast of 1.1. The Eurozone ZEW Economic Sentiment Index spiked to 11.2 against median expectations of 2.2. US Q3 Revised Unit Labour Costs fell to 2.5% from a previous 3.6%, and below forecasts of 3.4%.
- EUR/USD – the shared currency spiked to just under 1.1100, trading at an overnight high of 1.10972 before settling at 1.1096 in early Sydney. EUR/USD opened at 1.1065 yesterday. The surprise jump in both German and Eurozone ZEW Sentiment boosted the shared currency.
- USD/JPY – closed a touch higher at 108.74 from yesterday’s 108.65. The Dollar traded in a familiar, dull range of 108.51 to 108.77.
- GBP/USD – The British Pound slumped to 1.3115 after extended its advance heading into this weekend’s UK general election. The latest YouGov poll showed a reduced lead from Boris Johnson and his Conservatives heading into this weekend’s general election.
- AUD/USD – The Aussie dipped anew to close at 0.6815 after trading to an overnight low at 0.6800. The Aussie Battler is struggling to maintain its momentum against the US Dollar despite signs that the US and China are moving toward delaying the December 15 tariff hike.
On the Lookout: Sterling got the fireworks started this morning after some dull overnight trade. Markets will focus on the upcoming Federal Reserve meeting and announcement following. The US central bank is widely expected to keep the Fed Funds rate unchanged at 1.75% and remain on hold. Markets will be focussing on the FOMC’s future guidance and projections for 2020.
Before the Fed rate and policy announcement (6.00 am Sydney time on 12 December), data releases scheduled are: Australia’s Westpac Consumer Sentiment Index; Japanese PPI (Annual), Canadian Capacity Utilisation (October). The US releases its November Headline and Core CPI report.
Trading Perspective: All eyes on the Fed FOMC which is the key event today. While the event is important, its difficult to see a spike in FX volatility. However, Jerome Powell’s comments in his press conference following the announcement could excite. Traders are expecting him to reiterate that the Fed is in a good place because of the recent positive turnaround in the US economic reports since October. If his outlook is less hopeful than what is expected, the Dollar could slide.
On the trade front, the expectations are that President Trump will deliver an early Christmas gift to the markets by delaying new tariffs on China. Some even respect a reduction of existing ones. All very rosy for risk. Anything less than these rosy scenarios, the risk will turn sour quickly. Traders hope for fireworks, one way or the other.
Market positioning remains long of Dollars and the spike up on the Euro from the surprise improvement in German and Eurozone ZEW Surveys could see more currency short covering approaching the holidays.
- EUR/USD – The Euro closed at 1.1196, after trading to an overnight low at 1.10627. The 1.1040/50 support region held well and remains the immediate support. There is short term resistance here at 1.1100 which is followed by 1.1130. A sustained break of 1.1140 could see the Euro higher. Unlikely ahead of tonight’s Fed and tomorrow’s ECB meetings. Look for consolidation today with a likely range of 1.1065-1.1115. Prefer to buy dips.
- GBP/USD – The British Pound finished as best performing currency yesterday, climbing 0.40% against the Greenback, closing at 1.3198, just under resistance at 1.3200. Sterling’s up move since Friday’s US Jobs report has been fuelled by the latest polls supporting Boris Johnson and his Conservative Party ahead of this weekend’s general election. From this writer’s trading experience, election polls can never be fully relied on, and given the strong rise in the Pound from a week ago (GBP/USD was at 1.2995), the short-term risk is lower. As this is written, GBP/USD has plunged to 1.3115 from 1.3185 with the latest YouGov poll showing a reduced Tory lead. Immediate support lies at 1.3100 and 1.3080. Immediate resistance can be found at 1.3150 followed by 1.3180. Expect the fireworks to continue in this currency. Look to trade a range of 1.3080-1.3180 from here.
- AUD/USD – The Aussie continues to grind lower in the current environment. AUD/USD traded to an overnight high at 0.68374 with immediate resistance today coming in at 0.6840. The next resistance level can be found at 0.6860. Immediate support can be found at 0.6805 followed by 0.6785. While the Aussie Battler has that heavy feel to it, bear in mind that the speculative market is short of Aussie. Expect a likely range today of 0.6795-0.6845. Prefer to buy dips near current levels.
- USD/JPY – The Dollar continues to trade within a familiar range of 108.50-108.80. With risk sentiment improving slightly, USD/JPY is better bid in Asia this morning. Immediate resistance can be found at 108.85 followed by 109.05. Immediate support on the day lies at 108.60 followed by 108.30. Any negative surprises on the trade front or a slightly dovish Fed could see a shake out of speculative USD longs in this currency pair. Look for a likely trading range today of 110.55-110.95. Prefer to sell rallies.
Happy trading all.