November 22, 2016

Daily Observations:

Asian stocks climbed, joining a global rally, and metals advanced, while oil extended its advance on optimism OPEC will agree to cut output. The US dollar weakened overnight, halting a two-week surge. The yen pared an earlier advance sparked by a tsunami warning following an earthquake.

US:

  • Fed Vice Chairman Stanley Fischer said the Fed remains focused on inflation and that the US economy is in the vicinity of its dual target of inflation and employment.
  • All three major indices in the US closed at record highs last night, as combined optimism from a possible OPEC deal and a growing belief that the new Trump administration’s plan to cut taxes and boost fiscal spending may benefit industries more geared towards economic growth.
  • The S&P 500 Index closed 0.8% higher as energy stocks led gainers.
  • According to Fed funds futures pricing on Bloomberg, the odds of a December rate-hike is now 100%, compared to 68% in the beginning of November.
  • The benchmark 10yr Treasury yield fell 4bps to 2.32%. Markets have continued to price in for the Fed to continue hiking rates in 2017, with two hikes as the general consensus among analysts.
  • US dollar weakness resurfaced, after the currency reached its strongest level in more than 9 months yesterday morning. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, fell 0.4% in New York and a further 0.3% earlier today. After a surging rally over the past two weeks, the US dollar is expected to undergo some form of consolidation around current levels.

UK:

  • Chancellor of Exchequer Philip Hammond will pledge 1 billion pounds to improve Britain’s broadband infrastructure, part of a program of investment to boost productivity.
  • The Treasury has already announced other infrastructure projects which includes a 1.3 billion pound-initiative to improve Britain’s roads.

Europe:

  • Speaking in European parliament, ECB President Mario Draghi highlighted the increased geopolitical risks in the wake of Brexit and Trump’s win in the US presidential elections. He also defended his corporate bond buying program and noted that the ECB will continue to provide monetary support needed to achieve its inflation goal.

Japan:

  • A 7.3-maginitude earthquake stuck the Fukushima-area of Japan earlier today, sparking an alert warning for a 3-metere tsunami from authorities. However, fortunately no major damages were reported at 3 nearby nuclear plants, all of which have been shut since the 2011 disaster.

Australia:

  • In a surprisingly upbeat note on the Australian economy, Goldman Sachs chief economist Tim Toohey upgraded his GDP growth forecasts for the next 4 years by as much as 0.5% and said that there was a growing chance the RBA will start lifting interest rates in the second half of 2017, which should support the currency.

Precious Metals:

  • Spot gold rebounded from its post-Brexit low, gaining 0.6% last night and a further 0.5% to $1,221.16/Oz. The $1,200/Oz price level is likely to provide some support at least for the time being, while the $1,233.18/Oz high last week will act as a resistance point.
  • Spot silver rose 1.1% earlier today to $16.8724/Oz after rebounding off the $16.50/Oz level last night. A close below the $16.50/Oz level would result in more than a 20% retreat from its August highs, or a technical bear market for the metal.

Oil:

  • Crude oil for December delivery settled 4.1% higher last night, and extended gains earlier today by another 1.2% to $48.81/bbl, after Iranian Oil Minister Zanganeh said it’s “highly probable” OPEC will reach a consensus to cut supply at the talks.
  • Libyan OPEC Governor Mohamed Oun added that discussions went well, as he left the group’s Vienna headquarters last evening.

 

USDSGD:

  • Spot 1.4219
  • USDSGD declined 0.3% to 1.4202 amid overnight US dollar weakness.
  • The currency pair’s recent surge seems to be overdone, and a retreat back to the 1.4100 handle is possible.
  • Near-term resistance lies around 1.4350.

 

AUDUSD:

  • Spot 0.7394
  • Following a 5% decline over the past 2 weeks, AUDUSD seems to have found some footing above the 0.7300 handle. The currency pair extended upon previous day’s gains to rise a further 0.6% to 0.7409 earlier today.
  • Goldman Sachs have noted that the currency pair could rise to 0.8000 should commodity prices sustain some of their recent strong gains.
  • Support levels further below come in at 0.7259 and 0.7145.

 

USDCAD:

  • Spot 1.3402
  • USDCAD declined to its lowest in a week, 0.6% lower to 1.3387, before recovering back above the 1.3400 handle.
  • The currency pair’s decline over the past 2 days could be strongly attributed to strengthening crude oil prices, which have helped to negate post-US presidential election effects.

 

USDCNH:

  • Spot 6.9102
  • The PBOC set its reference rate 0.3% higher today, the most since Oct 31st, at 6.8779; this marks the first higher fixing in 13 days.
  • The fixing was set higher than what most currency analysts were expecting, reinforcing speculation that policy makers are prepared to step up measures to slow the currency’s declines.
  • The 6.9000 continues to act as a support level, with USDCNH 0.1% higher at 6.9116 earlier today.

 

USDJPY:

  • Spot 110.85
  • The yen was more volatile than usual earlier today due to an earthquake this morning. USDJPY has since recovered some declines after authorities allayed fears and said no damage was reported at nuclear plants.
  • USDJPY continues to maintain above the 110 level and the next key resistance lies at 111.45.

 

GBPUSD:

  • Spot 1.2495
  • GBPUSD advanced 1.5% to 1.2513 earlier, amid overnight US dollar weakness.
  • The 1.2100 handle remains a key support level, while 1.2800 acts as an important resistance handle.
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