January 10, 2017

Daily Observations:

The US dollar slumped for a second day, continuing its slide from a multi-year peak at the beginning of 2017. Asians stocks were mixed as indices in Hong Kong, Singapore and Mumbai gained while those in Tokyo, Sydney, Shanghai and Seoul declined. Oil maintained near 3-week lows following a 3.8% slump overnight. Gold climbed to its highest level in a month amid continued US dollar weakness.

US:

  • Treasuries rose, while equities fell, as an advance in riskier assets faltered overnight amid uncertainty over the UK’s future trading role with Europe.
  • The S&P 500 Index slipped from a record high the previous day, ending 0.4% lower; energy shares led losers.
  • The US dollar reversed earlier gains, as the Bloomberg Dollar Spot Index declined 0.1% while the Dollar Index slipped 0.3%.
  • The benchmark 10yr Treasury yield fell 6bps to 2.36%; most Treasuries ended higher across the curve amid narrow ranges and low volume.
  • President-elect Donald Trump’s son-in-law, Jared Kushner, will be named senior adviser to the president, according to a person familiar with the matter, Bloomberg reported.
  • Potential candidates to head the Fed in 2018 suggested that monetary policy would be tighter if they were in charge. Glenn Hubbard of Columbia University, along with Stanford University’s John Taylor and Kevin Warsh, criticised the central bank for trying to do too much to help an economy struggling with problems that monetary policy can’t solve. Fed watchers see all 3, whom were former officials in Bush’s administration, as among the candidates to take over should Trump decide not to nominate Yellen for another term when her current one expires in February 2018.
  • The Fed can increase rates gradually as inflation rises and the labor market achieves full employment, according to 2 regional Fed presidents, though they took different views on how many hikes would be needed this year:
    • Atlanta Fed chief Dennis Lockhart said he was on the more “cautious side” of the two-rate hikes versus three debate, adding that he viewed fiscal stimulus as an “upside risk factor”.
    • Boston Fed President Eric Rosengren urged the committee to accelerate the pace of hikes, and pointed out that inflation is on track to reach the 2% target by year’s end and could overshoot if unemployment rate falls further.

UK:

  • The UK will need a completely new trading relationship with the EU after its withdrawal, Prime Minister Theresa May said yesterday, sparking a sell-off in the pound amid concerns that she’s planning to pull the country out of the continent’s single market.

China:

  • December’s CPI gained 2.1% from a year earlier, slowing from prior month’s 2.3% gain and missing the median estimate of 2.2%.
  • PPI over the same period accelerated, rising 5.5% which is the fastest pace in more than 5 years; analysts were expecting a 4.6% increase.
  • Only 4 months out of a multi-year factory deflation, the world’s second-largest economy is poised to export inflation to nations around the globe through its supply chains as manufacturers squeezed by higher input costs raise asking prices. Whether that rebound can be sustained, depends on how the global economy fares under a new Trump-led presidency and if trade tensions flare between the US and China.

Australia:

  • November retail sales rose 0.2% month-on-month, slowing down from October’s 0.5% gain and missing the median estimate of 0.4%.

Precious Metals:

  • Spot gold continues to struggle to break above the key $1,180/Oz resistance, retreating back below the level earlier today, the second time in its past 3 sessions.
  • A clean break above $1,180/Oz could pave the way for another leg up to the next resistance level of $1,200/Oz.
  • Increased demand for the precious metal ahead of the Lunar New Year may provide further support for gold in the coming week.
  • The $1,150/Oz and $1,125/Oz levels below are likely to provide added support.
  • Silver for immediate delivery failed to trade past its 3-week high of $16.7207/Oz, but maintained gains of around 0.4% at $16.5518/Oz earlier today.

Oil:

  • Crude oil futures expiring in February sank 3.8% overnight to close at $51.96/bbl, after Baker Hughes revealed US crude stockpiles probably rose by 2 million barrels last week, adding to concerns that increased US output could negate the effects of planned OPEC cuts.

 

USDSGD:

  • Spot 1.4368
  • USDSGD fell by as much as 0.5% to 1.4340 earlier today, following last night’s risk-off rally in Treasuries.
  • The recent low of 1.4270 remains the key level to watch; a clean break past it would signal more declines to follow for USDSGD, with the next level of support coming in at 1.4150.

 

AUDUSD:

  • Spot 0.7356
  • AUDUSD added 0.9% earlier to test the key resistance level of 0.7385, before paring some of its gains slightly heading into midday.
  • Beyond 0.7385, the next point of resistance lies at 0.7525, while the support level below at 0.7300 represents a good entry level for Aussie bulls.

 

USDCAD:

  • Spot 1.3210
  • USDCAD looks set to resume its recent downtrend, falling 0.4% to 1.3198 earlier today amid a sell-off in US dollar and despite overnight weakness in crude oil prices.
  • The support of 1.3100 remains as the next key support as it coincides with the 200-day moving average.

 

USDCNH:

  • Spot 6.8740
  • USDCNH rebounded off the 6.9000 handle earlier, paring gains and currently sits little changed from its previous day’s close at 6.8782.
  • The PBOC had earlier strengthened its fixing by 0.04% to 6.9234.
  • The yuan has resumed its depreciation trend this week, after being confronted by a short squeeze and soaring funding costs last week, which propelled CNH to a record weekly advance to the dollar.

 

USDJPY:

  • Spot 115.61
  • USDJPY neared its 3-week low, declining 1.6% to 115.20 earlier.
  • The 115 support is proving to be a resilient one, and a renewed charge back to the recent high of 118.66 could be in the offing should the 115 level hold.

 

GBPUSD:

  • Spot 1.2152
  • GBPUSD was largely unchanged, following its previous session’s 1.0% decline to 1.2159 – the currency pair’s lowest close in more than 2 months.
  • The next key support below comes in at 1.2090.
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