December 6, 2016

Daily Observations:

Asian stocks joined a global relief rally as investors switched their focus back to the outlook for US monetary policy following the defeat of Italy’s constitutional referendum. The US dollar gained, while crude oil retreated.

US:

  • Federal Reserve Bank of New York President William Dudley signalled that he approves of higher interest rates over time as the economy continues to improve, while cautioning that fiscal and monetary policy need to work together to secure the longer-term outlook.
  • November Markit US services PMI fell to 54.6, from 54.7 previously, missing the consensus estimate of 54.9.
  • Last month’s ISM non-manufacturing index jumped to 57.2, from 54.8 in October, exceeding the median forecast of 55.5.
  • The S&P 5oo Index added 0.6%, after retreating last week for the first time in a month, while the Dow Jones Industrial Index registered a new all-time high. Financials and tech stocks led gainers.
  • The US dollar weakened overnight, mainly against the euro which strengthened 0.9% and erasing an earlier slump of as much as 1.5%. The Bloomberg Dollar Spot Index fell 0.7% in New York.
  • The benchmark 10yr Treasury yield rose 1bp to 2.39%, reversing an earlier gain of as much as 7bps.

Italy:

  • Italian Prime Minister Matteo Renzi was asked by President Mattarella to put his resignation on hold pending budget approval by parliament.
  • According to market data, credit default swaps insuring Italian sovereign debt against default for 5yrs rose by 3bps to 175bps.

Japan:

  • Labor cash earnings in October rose 0.1% year-on-year, lower than the 0.2% gain expected, while the prior figure was revised lower to 0.0% from 0.2%.

Australia:

  • The RBA kept interest rates unchanged earlier today at 1.50%, and warned “some slowing in the year-ended growth rate is likely” while noting that higher resource export prices “are providing a boost to national income”.
  • The decision was expected by economists surveyed by Bloomberg, as Governor Lowe had earlier expressed concerns that further easing could destabilize an economy where households are already saddled with record debt.

Precious Metals:

  • Spot gold declined to a fresh 10-month low last night before paring losses back to the $1,170/Oz handle today.
  • According to Ned Naylor-Leyland, a London-based fund manager of the Old Mutual Gold & Silver Fund, gold will strengthen as the Fed fails to increase interest rates fast enough to keep up with inflation. He added that the central bank will be slow to tighten monetary policy because years of low rates have made the baking system dependent on loose credit and led to a misallocation of capital, which will keep real rates negative and encourage investment in gold.
  • Below the $1,170/Oz support, the next level comes in at $1,145/Oz, while the previous support of $1,200/Oz now acts as a key point of resistance.
  • Spot silver was 1.9% higher at $16.8975/Oz earlier today. The metal continues to be consolidate within the $16/Oz and 17/Oz handles.

Oil:

  • Crude oil for January delivery remained supported above the $51/bbl today, retreating from its highest close in 16 months last night.
  • Focus has now shifted to this Saturday’s talks in Vienna, where 14 producers including Mexico and Kazakhstan have been invited to.

 

USDSGD:

  • Spot 1.4201
  • USDSGD declined 0.6% to a two-week low of 1.4171 last night before paring declines to recover back above the 1.4200 support this morning.
  • The 1.4200 handle continues to provide decent support, while the next point of resistance lies above at 1.4444, the currency pair’s year-to-date high.

 

AUDUSD:

  • Spot 0.7449
  • AUDUSD was little changed after RBA’s rate decision earlier today; the currency pair had earlier retreated from the 0.7500 handle tested last night, the fourth time in a space of over a week.
  • Support levels below come in at 0.7259 and 0.7145, while the key resistance point lies at the 0.7500 handle.

 

USDCAD:

  • Spot 1.3275
  • USDCAD declined to its lowest in more than a month, falling 0.7% to 1.3236 amid overnight US dollar weakness continued resilience in crude oil prices.
  • A close below the current support level of 1.3265 could indicate a near-term reversal back to the lower support of 1.3000.
  • The resistance at 1.3589 remains.

 

USDCNH:

  • Spot 6.8782
  • The PBOC strengthened its fixing this morning by the most since 6th June, 0.49% higher to 6.8575 per US dollar.
  • USDCNH was largely unchanged, recovering from a 3-week low of 6.8558 yesterday evening.
  • Onshore yuan gained as much as 0.3% to the US dollar, as today’s stronger-than-expected fixing spurred speculation that policy makers are supporting the currency.

 

USDJPY:

  • Spot 113.94
  • USDJPY reversed earlier gains, rebounding off its high last week of 114.83.
  • The currency pair has struggled to stay above 114.50, its current resistance level. A close above 114.50 may result in the pair moving higher to its next resistance of 116.00.
  • Support is likely to be found at the 111.00 handle.

 

GBPUSD:

  • Spot 1.2750
  • GBPUSD made fresh recent highs earlier in the session, gaining 0.4% to 1.2762
  • On a longer-term basis, the 1.2300 handle remains a key support level, while 1.2800 acts as an important resistance handle.
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