The dollar reacted lower from a resistance level as the treasury yields move a notch lower (to 1.83% from 1.87%). This helped the markets we have followed lately to strengthen and moved the price of gold well beyond a key resistance level that caused some profit-taking earlier. Canadian CPI y/y was confirmed at 4.8%, the highest level since the early ’90s. On monthly basis, inflation ticked down -0.1%. This was the first decline since December 2020. Australian Employment rate came in at 4.2% (4.5% expected) while the employment change also topped analyst consensus prediction. We’ll cover EURUSD, AUDUSD, NZDUSD and Gold in this report. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
The companies releasing earnings on our watchlist today are PG, CSX, ISRG, UNP and NFLX. Look for additional volatility (trading opportunities) in these equity CFDs today. Companies reporting tomorrow: AAL, SLB and TRV.
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Gold rallied strongly yesterday after the green team had a good think about their commitment to the bull move that has been going on in gold. As we expected, profit-taking slowed the price move down before the bulls were ready to push the price above the 1831.66 resistance. The latest move has been an extension in a bullish move we have been following for the last three weeks. Now the price is approaching an important resistance level at 1849.67 while the nearest key support levels are at 1810.58 and 1831.66. We said three weeks ago (read more here) that we believed gold to be short term bullish and that the 1849.67 was a key resistance. Now the market has moved most of this projection and the upside could be getting limited soon.
EURUSD started to react higher yesterday after the pair had retraced to the buy area we identified two days ago. Weakness in USD Index led the pair higher after it was trading inside the 1.1310 – 1.1333 support area (formed by the 50% Fibo-level and the bull channel low) when buyers started to engage in this market. EURUSD remains bullish above 1.1310 while a break below it could lead to either further consolidation or testing of the next key supports at 1.1227 and 1.1284.
AUDUSD continued higher from the bull channel low pretty much as we expected but the rally didn’t reach as high as we predicted. The sellers stepped in after 60 or so pips while we thought there’d be space for an 85 pip move. The market might have to test levels nearer to the rising support (channel low) before the bulls are ready for the next rally attempt. The nearest key support and resistance levels for the market are 0.7130, 0.7170, 0.7180 (channel low) and 0.7256. A break below the bull channel would be likely to bring the 0.7130 low to play again.
NZDUSD failed to continue the rally it had started yesterday in the Asian session. Now the pair is once again trading at the rising trendline support. The break above the 0.6787 resistance wasn’t decisive enough and now the new threshold level is 0.6811 (yesterday’s high). The market needs to break above this level in order to really become bullish again. Below this level, the risk is that the consolidation continues and could turn into a weakness.
If both the channel low and the 0.6733 support below it are violated, the likelihood that the 0.6702 low gets tested again is pretty high. The next important NZD related risk event (CPI q/q) is scheduled for January 26th. Until then traders are likely to focus on risk sentiment and the expectations for the Fed policy and NZDUSD technicals. The nearest key price levels for NZDUSD are 0.6702, 0.6733, 0.6787 and 0.6890.
Macro Drivers for the USD As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The Federal Reserve||Fed has started tapering and expects it to end in the summer of 2022. The central bank was forced to change its views on inflation being transitional inflation traders expect the first hike in June 2022 (the probability of a hike is 80.9% at the time of writing this).|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus since the beginning of the pandemic. Now, US Congress has passed a $1.2 trillion infrastructure spending plan.|
|Yields||In Q3 and Q4 2021 the benchmark 10-year US Treasury yield ranged between 1.1720% and 1.6830%. The hottest inflation readings since 1982 have pushed the 10 yr. yield higher as bonds have been selling off.|
|Employment||The December non-farm payrolls increased by 199K instead of 400K expected by the analyst consensus while the unemployment rate was a positive surprise at 3.9% (4.1% expected). Average hourly earnings came in at 0.6% (0.4% expected) moving the annual rate to 4.7% (4.2% expected).|
|Inflation||The annual headline inflation reading for December at 7% (6.8% previous) is the highest CPI print in almost 40 years. The core CPI (all items less food and energy) moved to 5.5 per cent y/y (4.9% previous) This was the biggest annual increase in CPI since 1982.|
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The Next Main Risk Events
- USD – Philly Fed Manufacturing Index
- USD – Unemployment Claims
- USD – Existing Home Sales
- USD – Crude Oil Inventories
- GBP – Retail Sales m/m
- EUR – ECB President Lagarde Speaks
For more information and details see the TIOmarkets economic calendar here.
Market News & Facts
- Canada December CPI y/y 4.8% (4.8% expected)
- UK December CPI 5.4% y/y (5.2% expected)
- Empire Fed manufacturing -0.7 (25.0 expected)
- BOJ leaves monetary policy unchanged
- New Zealand business confidence -28% (-11% previous)
- China GDP for Q4 2021 1.6% q/q (4.0% y/y)
- US December retail sales -1.9% (0.0% expected)
- ECB Lagarde: monetary accommodation needed still
- US GDP growth expected to be in 3% – 4% range
- Fed’s Clarida: Inflation will be transitory
- Fed’s Bullard: Four rate hikes in 2022 needed
- Fed’s Beige Book: Supply constraints slowing growth
- China December CPI +1.5% y/y (1.8% expected)
- World Bank cuts global GDP forecast to 4.1% (4.3% previous)
- US December non-farm payrolls 199K (400K expected)
Chief Market Analyst
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