Summary: The US Dollar gained ground against most Majors after data revealed business activity picked up in November. The Dollar Index (USD/DXY), which gauges the Greenback’s strength against a basket of six major currencies, rose 0.28% to 98.27 (97.89 Friday). Elsewhere, mediocre German and Eurozone services sector readings dragged the Euro 0.44% lower versus the Dollar. EUR/USD finished at 1.1020 in New York (1.1061). Sterling emerged as worst performing currency, falling hard after both manufacturing and services PMI’s contracted in November. Brexit’s uncertainties added to the Pound’s woes, which ended 0.77% lower to 1.2832 (1.2905). Broad-based US Dollar strength weighed on the Aussie, down 0.12% to 0.6785 (0.6790), while the Kiwi ended 0.10% lower to 0.6404.
Hopes for a trade pact between China and the US boosted risk appetite and pushed up Wall Street. The DOW gained 0.41% to 27,888 while the S&P 500 closed 0.25% higher to 3,113.00.
US Flash Manufacturing PMI in November beat expectations, rising to 52.5 against 51.5 median forecasts. US Flash Services climbed to 51.6 bettering forecasts of 51.2. US University of Michigan Consumer Sentiment edged up to 96.8 in November from October’s 95.7. UK Flash Manufacturing PMI slipped to 48.3 (against forecasts of 48.8), while Services Output fell to 48.6 from 50 the previous month. The UK Composite PMI Index slumped to its lowest level since the UK opted to leave the European Union in July 2016. Slower Services expansion in Germany (down 51.3 vs forecasts of 52.0) and the Eurozone (51.5 against f/c of 52.4) confirmed that the region grew at a slower pace.
- EUR/USD – The Euro fell further, breaking the 1.1050 level, and headed to the 1.10 support area. The shared currency closed at 1.1020, not far from its overnight close at 1.1020.
- GBP/USD – Sterling sank 0.77% to 1.2832 (1.2904) to finish as worst performing currency after both UK factory and services output fell. The slowdown in the British economy deepened in the month of November, with the decision to leave the EU in mid-2016 inflicting ongoing pain and signalling more to come ahead for the UK.
- AUD/USD – The Australian Dollar saw a modest drop against the overall stronger Greenback to 0.6785 from 0.6790. The antipodean currencies, which includes the New Zealand Dollar see a relatively active event and data week ahead.
On the Lookout: Today’s data calendar is light with Germany’s IFO Business Climate report kicking off followed by UK Realised Sales for November. Canada reports on its Wholesale Sales. China’s Conference Board’s Leading Economic Index round up today’s reports.
Tomorrow sees the RBA’s Governor Lowe and Deputy Governor Debelle speaking at separate functions. Wednesday sees RBNZ Governor Graeme Orr speaking in Wellington on the Financial Stability report.
On the trade front, Bloomberg has reported earlier this morning that China plans to raise penalties on IP theft as part of a trade war compromise which is positive for risk. Developments from headlines on the trade front have been more positive and may take away Dollar support in FX.
Trading Perspective: While the Dollar saw impressive gains versus Sterling and the Euro, its advance versus the other currencies is far from impressive. The ten-year US bond yield was flat at 1.77% on Friday, while those of its Rivals were mostly lower by 2-4 basis points. This should provide short term support for the Greenback.
Manufacturing and Services PMI reports saw the divergence between the US and Europe lift the Greenback against the Pound and Euro. The combined weight of both currencies in the Dollar Index (USD/DXY) is 69.5%. USD/DXY finished at 98.27, 0.28% higher than Friday’s 97.89.
We look at the latest market positioning as further clues as to the next big move in FX given that this week is a short one with the big long US Thanksgiving weekend ahead.
- USD/DXY – The Dollar Index rallied 0.28% to 98.27 on Friday, it’s largest gain since November 5. Overnight high traded was 98.305. Immediate resistance lies at 98.50 followed by 98.75. Immediate support can be found at 98.10 and 97.85. Look to trade a likely range today of 98.10-98.30. Prefer to sell rallies.
- EUR/USD – The Euro slumped 0.44% to 1.1020 after trading to an overnight low at 1.10145. The shared currency has dropped from 1.11 to 1.10 in two trading days which gives the Euro a heavy feel. Also in contrast to the flat US 10-year bond yield, Germany’s 10-year Bund yield has dropped 3 basis points to -0.36%, which also weighs on the currency. Immediate support lies at 1.1000 followed by 1.0980. Immediate resistance can be found at 1.1045 and 1.1085 (overnight high traded was 1.10874). Any positive news on the trade front will be supportive of the Euro, which is near a short-term base. Prefer to buy dips with a likely range of 1.1010-1.1060 today.
- GBP/USD – Sterling has slipped after attempts to break up above 1.30 failed. Weaker-than-forecast manufacturing and services output weighed further on the British Pound. Overnight low trade for Sterling was 1.28232 with immediate support on the day located at 1.2820. The next support level is at 1.2800 followed by 1.2780. Immediate resistance can be found at 1.2860 followed by 1.2900. Look to buy dips in a likely 1.2820-1.2890 range today.
- AUD/USD – The Australian Dollar continues to trade within a 0.6770-0.6840 range. The latest pullback reached an overnight low at 0.67805. Immediate support on the day lies at 0.6770 followed by 0.6750. Immediate resistance can be found at 0.6800 followed by 0.6830. Look to buy dips in a likely range today of 0.6775-0.6815.
Have a good week ahead all, happy trading.