Dollar Dips Modestly Post US CPI, Fed FOMC Up Next

Aussie Underperforms; Yen, Euro Edge Up, Yields Ease

Summary:

The Dollar Index (DXY), a popular gauge of the Greenback’s value against a basket of 6 major currencies eased modestly after US Headline Inflation eased to 3.1% in November from 3.2% previously. Economists had forecast annual US CPI at 3.1%.

At the close of trade in New York, USD/DXY dipped to 103.87 (103.97). The Greenback finished modestly lower against most Rivals. The USD/JPY pair edged lower to 145.65 (145.95), while the Euro (EUR/USD) climbed to 1.0790 from 1.0765.

Ahead of the conclusion of tonight’s (tomorrow morning Sydney) Federal Reserve FOMC meeting, market participants expect the US central bank to keep interest rates steady.

Chair Jerome Powell’s remarks, as well as the Fed’s dot plot forecast, which is the projection of the key short term interest rate, will be closely scrutinized.

The Australian Dollar (AUD/USD) underperformed, slipping to 0.6555 from 0.6577 earlier in the week. The Aussie Battler traded around its recent range between 0.6540 and 0.6620.

Sterling (GBP/USD) grinded higher to finish at 1.2560, modestly higher than its 1.2535 finish earlier this week. Despite a drop in the UK’s Claimant Count Change (change in the number of unemployed people), Britain’s Jobless rate was unchanged, at 4.2%.

Against the Asian and Emerging Market Currencies (EMFX), the Dollar finished mixed. The USD/CNH (Dollar-Offshore Chinese Yuan) pair dipped to 7.1830 from 7.1895. The Greenback gained versus the Thai Baht (USD/THB) to 35.55 from 35.40 previously.

Global bond yields eased. The benchmark US 10-year treasury bond rate settled at 4.20% (4.23%). Germany’s 10-year Bund yield was last at 2.22% from 2.27% yesterday.

Other economic data released yesterday saw Japan’s Producer Price Index (PPI) climb to 0.3% year-on-year, down from 0.9% previously, but higher than median forecasts at 0.1%.

Germany’s ZEW Economic Sentiment Index climbed to 23.0 from 13.8 previously, beating median estimates at 13.3. The Euro soared to its overnight peak at 1.0828 following the release before easing to 1.0792 in late New York.

Wall Street stocks rallied. The DOW closed at 36,537, up from 36,227 while the S&P 500 rose to 4,637 (4,603). Other global share indices edged higher. Australia’s ASX 200 rallied to 7,235 (7,215).

USD/JPY – Trading in the Greenback versus the Japanese Yen was more subdued, although ranges were still wide. The USD/JPY pair traded to an overnight high at 146.12 before settling at 145.65 in late New York. The overnight low recorded was 144.72.AUD/USD – The Australian Battler underperformed, sliding to 0.6555 against 0.6577 previously. The AUD/USD pair tumbled to an overnight low at 0.6540 before recovering modestly in late New York. The overnight high traded was 0.6612.EUR/USD – Broad-based USD weakness supported the shared currency to finish at 1.0790, up from its previous close of 1.0765. The Euro soared to an overnight high at 1.0828 before slipping. The overnight low recorded for the shared currency was 1.0761.GBP/USD – The British Pound finished with modest gains versus the Greenback, at 1.2560 from 1.2535 previously. In choppy trade, Sterling soared to an overnight high at 1.2615 while the overnight low traded was at 1.2514.On the Lookout:

Today’s economic calendar kicks off with New Zealand’s Q3 Current Account (q/q f/c -NZD 10.848 billion from -NZD 4.208 billion previously – ACY Finlogix).

New Zealand also releases its November Food Inflation (y/y f/c 5.8% from 6.3% previously – ACY Finlogix).

Next up is Japan’s Tankan Large Manufacturer’s Index (f/c 10 from 9 previously – ACY Finlogix), and Japanese Tankan Small Manufacturer’s Index (f/c -4 from -5 – ACY Finlogix).

The UK starts off Europe with its UK October Goods Trade Balance (f/c -GBP 14.8 billion from -GBP 14.288 billion – ACY Finlogix), UK October GDP (m/m f/c 0% from 0.2%; y/y f/c 0.6% from 1.3% - ACY Finlogix), UK October Industrial Production (m/m f/c -0.1% from 0%; y/y f/c 1.1% from 1.5% - ACY Finlogix), UK October Manufacturing Production (m/m f/c 0% from 0.1%; y/y f/c 0 from 0.1% - ACY Finlogix).

China releases its November New Yuan Loans (f/c CNY 1300 billion from CNY 738.4 billion – ACY Finlogix). The Eurozone follows with its Eurozone October Industrial Production (m/m f/c -0.3% from -1.1%; y/y f/c -4.6% from -6.9% - ACY Finlogix).

The US rounds up today’s economic data releases with its US November PPI (m/m f/c 0.0% from -0.5% - ACY Finlogix) and US November Core PPI (m/m f/c 0.2% from 0% - ACY Finlogix).

The US Federal Reserve is not expected to change its Fed Funds Rate of 5.5% at the conclusion of its FOMC monetary policy meeting tomorrow morning (6 am Sydney).

Trading Perspective:

The Dollar eased modestly after US Headline Inflation eased on a year-on year basis to 3.1% from 3.2% previously.

Core US November inflation though was unchanged, at 4%. Markets will be scrutinizing tomorrow morning’s Fed dot plot forecast and remarks from Fed Chair Jerome Powell which follows the FOMC meeting.

The US central bank is widely expected to keep the Fed Funds rate unchanged at 5.5%. Tomorrow sees 3 other central bank monetary policy meetings.

They are the Swiss National Bank, the European Central Bank, and the Bank of England. All are expected to keep their monetary policies unchanged. The Bank of Japan holds its policy meeting early next week.

What this tells us is that FX volatility will remain elevated, as it traditionally does during the month of December. It’s vital to keep those tin helmets on, with opinions flexible.

USD/JPY – The Dollar had a relatively more subdued session against the Japanese Yen, finishing 0.3% lower at 145.65 (146.12). On the day, look for immediate support at 145.35 followed by 145.05. Immediate resistance can be found at 145.85 and 146.15 (the overnight high traded was 146.12). Look for more choppy trade today, likely between 144.70-146.20.EUR/USD – The shared currency rallied against the Greenback following successive falls. At the close of trade in New York, the Euro settled at 1.0790, up from 1.0765 previously. On the day, look for immediate resistance at 1.0830 (overnight high traded was 1.0828). The next resistance level lies at 1.0860. Immediate support can be found at 1.0760, followed by 1.0730 and 1.0700. Tin helmets on, look for a likely trading range today of 1.0750-1.0850.AUD/USD – The Aussie Battler slid to 0.6555 from 0.6577 previously despite a weaker Greenback versus the other major currencies. On the day, look for immediate support at 0.6535 (overnight low traded was 0.6540). The next support level lies at 0.6505. Immediate resistance is found at 0.6585 followed by 0.6615 (overnight high traded was 0.6612). Look for more choppy trade in the Aussie, likely between 0.6520-0.6620. Prefer to sell rallies. (Source: Finlogix.com)

GBP/USD – Sterling edged higher against the generally weaker Greenback to 1.2560. On the day look for immediate resistance in the British Pound at 1.2590 followed by 1.2620 (overnight high traded was 1.2615). Immediate support can be found at 1.2515, followed by 1.2495 and 1.2465. Look for a likely trading range today in the British Pound between 1.2515-1.2615. Trade the range, the preference is to sell on Sterling strength.

Look for another riveting day in FX land. Happy Wednesday and trading all.

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