Summary: Upbeat macroeconomic data led by the Euro area and Germany lifted the Euro and steadied risk. Markets looked past geopolitical tensions and towards the resilience of the global economy. No new threats emerged between Iran and the US. Euro area Service Sector data in December saw readings improve from Spain to Germany. The Euro rallied to an overnight high at 1.12056 before retreating to end at 1.1190, up 0.35% against the US Dollar. Sterling rebounded to finish 1.31656 (1.3075) as Boris Johnson prepared to meet with the new president of the European Commission, Ursula von der Leyen on Brexit and trade. The Dollar recovered against the Yen to 108.50 (108.12) as market sentiment improved. US December Services PMI lifted to 52.8 from 52.2 the previous month, beating forecasts of 52.2. The Australian Dollar underperformed, easing to 0.6935 (0.6945). The Dollar Index (USD/DXY) eased .013% to 96.70 from 96.896 yesterday. Wall Street stocks and treasury yields rebounded, finishing with marginal gains.
The Dow steadied to close at 28,660. (28,635). The US 10-year bond yield was up one basis point to 1.80% (1.79%). Germany’s 10-year Bund yield closed flat at -0.29%.
China’s December Caixin Services PMI dipped to 52.5 from November’s 53.5, missing forecasts of 53.2. Germany’s Retail Sales rose to 2.1% in December, beating expectations of 1.1% and an upward revised fall in November to -1.7%. Euro-area (Spain, Italy, France, Germany) Services PMI all bettered expectations while the Eurozone’s Final Services PMI rose to 52.8 from 52.4 and expectations of 52.4. UK Final Services PMI improved to 50.0 from 49.0, and forecasts of 49.1.
The Eurozone Sentix Investor Confidence Reading lifted to 7.6, bettering forecasts at 3.0 and a previous 0.7.
- EUR/USD – The Euro rallied to end at 1.1190 (1.1156) on the upbeat service sector readings from the Euro area countries and the Eurozone. Upbeat Eurozone investor confidence also buoyed the Euro. The shared currency hit an overnight high at 1.12056 before easing modestly at the NY close.
- GBP/USD – Sterling held the mid-1.30 support levels, bouncing off an overnight low at 1.30636 to settle at 1.3160 at the close in New York. An overall weaker US Dollar and an improvement in the UK Services PMI report supported the Pound.
- USD/JPY – The Dollar steadied against the Yen to 108.50, up 0.4% from 108.17 after falling to an overnight low at 107.77. A recovery in risk-off and higher US 10-year yields boosted this currency pair.
- AUD/USD – The Aussie finished a touch lower against the Dollar at 0.6935, down 0.14%. Bushfires continued to burn despite easing weather condition. China’s Caixin Services PMI underwhelmed which also weighed on the Battler.
On the Lookout: While geopolitical tensions eased, the risk of escalation between Iran and the US remains. Safe-haven assets like Gold continued to outperform. FX focussed on the upbeat Services sector data. Today sees Australia’s ANZ Job Ads, Swiss CPI, Eurozone Final Headline and Core CPI and Eurozone Retail Sales. North American reports see Canadian and US Trade Balances for December.
Trading Perspective: FX will continue to keep their eyes on new releases for further developments in the geopolitics which is the latest event to drive the markets. Risk sentiment steadied but is still fragile. Haven currencies like the Yen and Swiss Franc will continue to gain within recently established ranges. Growth currencies, mainly the Aussie and Kiwi are expected to remain under pressure.
- EUR/USD – The Euro held the overnight low levels around 1.11572 before attempting a move beyond 1.1200, easing to settle at 1.1190. The shared currency may be forming a base to trend higher against the US Dollar as economic data improves. Much will depend on the data that lies ahead. The week’s main event is the US Payrolls. EUR/USD has immediate support at 1.1170 followed by 1.1150. Immediate resistance can be found at 1.1205 and 1.1225. Look for a likely range today between 1.1185-1.1225. Prefer to buy dips.
- USD/JPY – The Dollar bounced back against the Yen to 108.50 after hitting an overnight and 3-month low at 107.77. The US 10-year yield climbed one basis point to 1.80% (1.79%) while Japanese 10-year JGBs were 1 basis point lower to -0.04%. USD/JPY has immediate resistance is found at 108.50 followed by 108.70. Immediate support can be found at 108.20 followed by 108.00. Any rise in geopolitical tensions will see this currency pair lower. Meantime look for a likely trading range today of 108.00-108.50. Prefer to sell rallies.
- AUD/USD – The Aussie Dollar underperformed, finishing at 0.6935 (0.6945 yesterday). The weaker than forecast China Caixin Services report contrasted with the upbeat Euro area, UK and US Services sector data. The effect of the ongoing bushfire crisis on the Australian economy has yet to be determined. While conditions eased yesterday, fires continued to burn with summer season weather set to continue. The Morrison government has pledged AUD 2 billion over the next 2 years as a “bushfire recovery fund”. A prominent economist estimates the fires will wipe off 0.25% to 1% of Australia’s GDP growth this year. AUD/USD has immediate resistance at 0.6960 (overnight high 0.69577) and 0.6990. Immediate support lies at 0.6920 (overnight low 0.69255) and 0.6900. Look to trade a likely range today of 0.6920-70. Prefer to buy dips as the speculative market is still short of Aussie.
Happy trading all.