USD Index was once again pushed to the 95.56 support level as Fed Chair Powell said it could take as much as three to four meetings to get the Fed board to agree on how to proceed in reducing the Fed’s 9 trillion dollar balance sheet. This reduced the 10-year yield by 3 basis points to 1.75% and turned a risk-on mode on in the markets that had priced in a more hawkish Fed. If we now get a CPI reading that is softer than the consensus prediction (0.4%) we could see further weakness in the dollar and further strength in the risky assets. US inflation numbers are released at 1:30 PM GMT today. The dollar alternatives Gold and ETHUSD rallied yesterday so we cover them again in today’s report. We also provide an update on EURAUD that has been losing some momentum now that the risk appetite in the markets has increased. 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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EURAUD created another lower high in the 8h chart. This raises questions about the bulls commitment to this market and increases the risk of EURAUD violating the 1.5730 support from which it rallied nicely earlier. Should the support break the market could move to the 1.5660 – 1.5690 range and then to 1.5630 if the market stays weak. However, the market is still trading above the 1.5730 support which coincides with the SMA(20) and a bull channel low while the 38.2% Fibo level isn’t too far either. Therefore, we have several technical factors in the 8h chart that make the 1.5730 support significant. Therefore, we have to conclude that the is still in an uptrend and could, therefore, rally further. The key resistance levels the bulls would need to tackle in order to keep the uptrend going are 1.5824 and 1.5854.
ETHUSD rallied over 3% after we highlighted the market as a buying opportunity yesterday. We noted how the market was trying to break out of a bear channel The 20 and 50-period SMAs had started to converge and the and the market had already moved outside a steeper channel. What’s needed next is a break above a resistance zone at 3222 – 3274. This would open the way for a move to the 3550 – 3670 range. A failure to break above the confluence area would be likely to bring take the market to the 2647 – 2900 range.
Gold rallied further yesterday after the green team started to control the game the day before by pushing the price above 1798.64. This confirmed our bullish view on gold. The resistance was cleared and the market has been rallying since. We noted yesterday that there are no clear resistance levels before 1829.60. That’s now about 0.4% away from the current market price so it wouldn’t be surprising to see some profit-taking start coming in soon. The nearest intraday support area is at 1800 – 1805 which is an area created by both moving averages and the 38.2% Fibonacci retracement level.
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 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 – CPI and Core CPI
- USD – 10-yr treasury bond auction
- USD – PPI and Core PPI
- Unemployment claims
For more information and details see the TIOmarkets economic calendar here.
Market News & Facts
- 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)
- Canada December employment change 54.7K (24.5K expected)
- ADP Employment Change 807K (405K expected)
- US unemployment claims 207 (199k expected)
- Bitcoin lower on Khazakstan upheaval
- 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)
Chief Market Analyst
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