USD strength turned into hesitation after the ISM Manufacturing PMI 58.7 (60.0 expected) and JOLTS Job Openings 10.56M (11.06 expected) came in at worse than expected levels. Treasury yields once again closed higher but USD bulls seemed to lack commitment at the close of the US session yesterday. Today’s FOMC meeting minutes publication is likely to give traders further guidance on how many board members are hawkish and how many remain dovish. Therefore, make sure your account is sufficiently funded for the trading opportunities that are likely to rise around the publication of the minutes. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
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USD Index (DXA) closed above a key trendline resistance yesterday as US treasury yields once again closed higher. We now have a bullish breakout from what could be described as a bearish price channel or a bullish wedge formation. Whichever way we name at the chart formations the message is the same, dollar bulls are trying to make most of the USD bullish fundamentals. What’s bearish in yesterday’s price action is the fact that the dollar index wasn’t able to hold the levels above the 96.38 level and created a lower reactionary high in the intraday charts. This could create a correction, perhaps to the 95.70 – 95.90 range. If this happens the bullish indications are still valid while a break of 95.56 support would increase the probability of a deeper correction in the USD.
USD Index rallied to the upper end of the bearish trend channel we talked about yesterday and now the Traders expectations for the first rate hike to take place in June have decreased slightly. However, traders are still pricing in only about 12% probability for a rate hike not taking place in June. Therefore, it’s safe to assume the traders firmly believe that the Fed is going to go ahead with the rate hike even if there is some variation in the probability.
NZDUSD recovered somewhat yesterday. We talked (here) about NZDUSD trying to rally but the low of the bull channel resisted the move. It was our view that should the NZDUSD manage to rally back inside the channel the 0.6814 – 0.6820 area (20-period SMA, 23.6% Fibo-level) is a key resistance area. This is where the sellers engaged with the NZDUSD again and the pair dropped to current levels. Yesterday’s high and low are now the key price points for those looking for direction in this market. A break below 67.64 might bring the recent swing low at 67.02 into play again while a break above 68.20 would indicate the bulls might try their strength at the 68.56 resistance level again.
Gold started to rally yesterday from the range we predicted the day before. A spike in yields pushed the price lower but it seems that others are sharing our view of gold being bullish even though it’s a bit volatile at the moment. We’ve said before and it’s worth repeating that gold is bullish above the 1784.82 support level. This far price action has proved our view correct and the recent volatility has provided superb trading opportunities for intraday traders. So, again: the price is still bullish above the 1784.82 level and even if the yields are rising it could have support from investors that see gold as an inflation hedge. The nearest key support and resistance levels are 1784.82, 1789.37, 1798.33 and 1831.66.
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||Payrolls increased by 210K in November. This was a massive disappointment after the analyst consensus had predicted strong jobs growth of 553K.|
|Inflation||The annual headline inflation reading for November at 6.8% (6.2% previous) is the highest CPI print in almost 40 years. The core CPI (all items less food and energy) moved to 4.9 per cent y/y (4.6% previous) This was in line with market expectations and was the biggest annual increase in core consumer prices since June 1991.|
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The Next Main Risk Events
- USD – ADP Non-Farm Employment Change
- CAD – Building Permits m/m
- USD – FOMC Meeting Minutes
For more information and details see the TIOmarkets economic calendar here.
Market News & Facts
- US inventories weigh on oil
- US ISM Manufacturing PMI 58.7 (60.0 expected)
- US JOLTS Job Openings 10.56M (11.06 expected)
- OPEC not expected to deviate from earlier output plans
- Biden: US to act decisively if Russia attacks Ukraine
- Trading in Evergrande shares halted in Hong Kong
- US Durable Goods Orders m/m 2.5% (1.9% expected)
- US Core PCE inflation 0.5% (0.4% expected)
- US Final GDP 2.3% (2.1% expected)
- US CB Consumer Confidence 115.8 (111.1)
- Canadian Retail Sales m/m 1.6% (1.0% expected)
- Canadian Core Retail Sales m/m 1.3% (1.6% expected)
- RBA Minutes: Omicron not likely to derail recovery
- German IFO Business Climate 94.7 (95.3 expected
- UK retail sales 1.4% (0.8% expected)
- Surprise 0.25% rate hike from the BOE (0.10% expected)
Chief Market Analyst
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