December 14, 2016

Daily Observations:

Markets were mostly muted during Asia’s morning trade as investors largely stayed on the side ahead of the Fed’s expected interest-rate hike later tonight. Crude oil retreated after industry data showed US stockpiles rose last week. Government bond yields largely declined after the BOJ unexpectedly increased long-bond purchases. Gold was steady as the precious metal continues to hold above the key $1,145/Oz support.

US:

  • November’s NFIB small business index rose to 98.4, from 94.9, exceeding estimates of 96.7 and registering the highest level since December 2014.
  • Global stocks advanced, as the Dow Jones Industrial Average surged towards 20,000 on speculation that the Fed’s expected rate increase later tonight is a signal of confidence the US economy is strengthening.
  • The S&P 500 Index added 0.7% to a fresh all-time high in New York, as technology stocks led gainers.
  • The US dollar was largely steady as market participants await tonight’s FOMC decision; the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose 0.1%.
  • Bloomberg’s Fed funds futures pricing data indicate a 100% chance of a rate hike by the Fed tonight, and a two-in-three chance of additional policy tightening by June next year.
  • The benchmark 10yr Treasury yield fell by a basis point, from 2.47% to 2.46%, earlier today.
  • President-elect Donald Trump has nominated Exxon Mobil CEO Rex Tillerson as secretary of state, and has won quick praise from Vlaidmir Putin’s key foreign policy adviser.

UK:

  • November CPI surprised to the upside, gaining 0.2% month-on-month and 1.2% year-on-year; the former met expectations while the latter exceeded the consensus estimate of 1.1%. Core CPI, which excludes the effects of oil and food, rose 1.4% form a year earlier, beating the median projection of 1.3%. Each reading was an improvement from October.

China:

  • China has warned Trump against any departure from the One-China policy. According to Xinhua News, a spokesman of China’s Taiwan Affairs Office said peace and stability of the Taiwan Strait will be “seriously” should that happen.

Japan:

  • This morning’s release of the current quarter’s Tankan survey indicated business sentiment is picking up as a weakening yen continues to provide a boost to large manufacturers, which are more dependent on exports than domestic-oriented companies.
  • The survey also showed business conditions at small companies remained challenging, underscoring sluggish domestic demand as well as pressures from worker shortages.

Australia:

  • December’s Westpac consumer confidence index declined 3.9%, from 101.3 to 97.3, a 7-month low.

Precious Metals:

  • Spot gold gained 0.5% to $1,165.92/Oz last night but failed to advance past its previous session’s high, as the previous metal continues to languish just above its 10-month low.
  • The current important support level comes in at $1,145/Oz while the previous support of $1,200/Oz now acts as a key point of resistance.
  • While tonight’s widely-expected rate hike may hit gold bullion initially, the precious metal could still perform well if real interest rates remain low. The Fed’s previous hiking cycle took place from June 2004 to June 2006, when it increased by 26bps 17 straight times; gold climbed during that period, rising more than 50%. It also surged in the first half of 2016 in the wake of last year’s inaugural rate increase.
  • Spot silver retreated back below the $17/Oz handle.

Oil:

  • Crude oil for January delivery gained 0.8% to close at $52.98/bbl, a 17-month high, but gapped lower this morning back towards the $52/bbl handle after US government data showed crude inventories last week rose by 4.7 million barrels last week.
  • According to the International Energy Agency, global oil markets will swing into deficit during the first half of next year amid OPEC’s recent agreement to curb supply.

 

USDSGD:

  • Spot 1.4250
  • USDSGD was lower by as much as 0.3% at 1.4226 last night ahead of tonight’s widely-expected rate hike.
  • The currency pair seems to be undergoing some consolidation between the 1.4200 and 1.4300 handles, following a break-out above the previous resistance of 1.3850 in October.

 

AUDUSD:

  • Spot 0.7486
  • AUDUSD briefly traded above the key 0.7500 resistance last night, before slipping back below and is currently unchanged from its previous session’s close.
  • The currency pair has been struggling to trade above the 0.7500 level since mid-November.
  • Support levels below come in at 0.7259 and 0.7145.

 

USDCAD:

  • Spot 1.3129
  • USDCAD registered fresh lows and rebounded off the 1.3100 support last night; the currency pair has been largely unchanged since as traders keep one eye on tonight’s FOMC decision.
  • The Canadian dollar has advanced almost 3% against the US dollar over the past 2 weeks.
  • The next test for the currency pair comes in at its 200-day moving average of 1.3078.

 

USDCNH:

  • Spot 6.9240
  • The PBOC lowered its fixing earlier today, by 0.14% to 6.9028 per US dollar.
  • USDCNH declined 0.2% to 6.9138 earlier in the session.

 

USDJPY:

  • Spot 115.19
  • USDJPY continues to hold above the 115 handle, despite trading lower by 0.4% to 114.97.
  • Short-term support is likely to be found above the 113.00 handle, while it still remains to be seen if the key resistance at 116.00 can be breached.

 

GBPUSD:

  • Spot 1.2680
  • GBPUSD gave up 0.5% to 1.2641, ahead of key economic releases in the US and UK later today.
  • The currency pair is likely to test its two month-high of 1.2775 in the near future. 1.2800 acts as an important resistance handle, while the key support at 1.2300 remains.
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